The Impact of Ambiguity Prudence on Insurance and Prevention

Arbeitspapier

Most decisions concerning (self-)insurance and self-protection have to be taken in situations in which a) the effort exerted precedes the moment uncertainty realises, and b) the probabilities of future states of the world are not perfectly known. By integrating these two characteristics in a simple theoretical framework, this paper derives plausible conditions under which ambiguity aversion raises the demand for (self-)insurance and self-protection. In particular, it is shown that in most usual situations where the level of ambiguity does not increase with the level of effort, a simple condition of ambiguity prudence known as decreasing absolute ambiguity aversion (DAAA) is sufficient to give a clear and positive answer to the question: Does ambiguity aversion raise the optimal level of effort?

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Nota di Lavoro ; No. 15.2015

Classification and Topics

• Classification: Wirtschaft ; Allocative Efficiency; Cost-Benefit Analysis ; Criteria for Decision-Making under Risk and Uncertainty ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Portfolio Choice; Investment Decisions
• Subject: Non-expected Utility ; Self-protection ; Self-insurance ; Ambiguity Prudence

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Berger, Loïc
• Event: Veröffentlichung
• (who): Fondazione Eni Enrico Mattei (FEEM)
• (where): Milano
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/113913
• Last update: 10.03.2025, 11:43 AM CET