Quotation Huang, Rachel, Mürmann, Alexander, Tzeng, Larry. 2016. Hidden Regret in Insurance Markets. Journal of Risk and Insurance 83 (1), 181-216.


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Abstract

We examine insurance markets with two-dimensional asymmetric information on risk type and on preferences related to regret. In contrast to Rothschild and Stiglitz (1976), the equilibrium can be efficient; that is, it can coincide with the equilibrium under full information. Furthermore, we show that pooling, semipooling, and separating equilibria can exist. Specifically, there exist separating equilibria that predict a positive correlation between the level of insurance coverage and risk type, as in the standard economic models of adverse selection, but there also exist separating equilibria that predict a negative correlation between the level of insurance coverage and risk type. Since optimal choice of regretful customers depends on foregone alternatives, the equilibrium includes a contract that is offered but not purchased.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Journal of Risk and Insurance
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, STRAT-A, VW-C, WH-A
Language English
Title Hidden Regret in Insurance Markets
Volume 83
Number 1
Year 2016
Page from 181
Page to 216
Reviewed? Y
DOI http://dx.doi.org/10.1111/jori.12096

Associations

Projects
PhD Programm: Vienna Graduate School of Finance
People
Mürmann, Alexander (Details)
External
Huang, Rachel
Tzeng, Larry
Organization
Institute for Finance, Banking and Insurance IN (Details)
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