Insurance and Behavioral Economics
Improving Decisions in the Most Misunderstood Industry

This book examines the behavior of individuals at risk and insurance industry policy makers involved in selling, buying and regulation.

Howard C. Kunreuther (Author), Mark V. Pauly (Author), Stacey McMorrow (Author)

9780521608268, Cambridge University Press

Paperback, published 28 January 2013

338 pages, 13 b/w illus. 10 tables
22.8 x 15.2 x 1.8 cm, 0.46 kg

'Psychologically, it's hard for most of us to take the initiative on long-term, ill-defined risks. Three scholars - Howard C. Kunreuther and Mark V. Pauly of the University of Pennsylvania and Stacey McMorrow of the Urban Institute - show this in their book. But they argue that if we're aware of them, these psychological impediments can be reduced, and they urge the innovation of long-term risk management contracts that address the problem of climate change.' The New York Times

This book examines the behavior of individuals at risk and insurance industry decision makers involved in selling, buying and regulation. It compares their actions to those predicted by benchmark models of choice derived from classical economic theory. Where actual choices stray from predictions, the behavior is considered to be anomalous. Howard C. Kunreuther, Mark Pauly and Stacey McMorrow attempt to understand why these anomalies occur, in many cases using insights from behavioral economics. The authors then consider if and how such behavioral anomalies could be modified to improve individual and social welfare. This book describes situations in which both public policy and the insurance industry's collective posture need to change. This may require incentives, rules and institutions to help reduce both inefficient and anomalous behavior, thereby encouraging behavior that will improve individual and social welfare.

1. Purposes of this book
2. An introduction to insurance in practice and theory
3. Anomalies and rumors of anomalies
4. Behavior consistent with benchmark models
5. Real world complications
6. Why people do or do not demand insurance
7. Demand anomalies
8. Descriptive models of insurance supply
9. Anomalies on the supply side
10. Design principles for insurance
11. Strategies for dealing with insurance-related anomalies
12. Innovations in insurance markets through multi-year contracts
13. Publicly provided social insurance.

Subject Areas: Organizational theory & behaviour [KJU], Political economy [KCP], Economics of industrial organisation [KCD], Research methods: general [GPS]