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Experimental markets for insurance

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Abstract

This article extends the large amount of research on double-oral auction markets to hazards that produce only losses. We report results from a series of experiments in which subjects endowed with low-probability losses can pay a premium for insurance protection. Insurers specify the price at which they are willing to assume the risk of a loss. Insurance prices approach expected value for a large range of probabilities and loss amounts. Subjects seem to realize losses are statistically independent. Prices are not affected by ambiguity about the probability of loss.

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Authors and Affiliations

  1. The Wharton School, University of Pennsylvania, 19104-6366, Philadelphia

    Colin Camerer

  2. The Wharton School, University of Pennsylvania, 19104-6366, Philadelphia

    Howard Kunreuther

Authors
  1. Colin Camerer
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  2. Howard Kunreuther
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Camerer, C., Kunreuther, H. Experimental markets for insurance. J Risk Uncertainty 2, 265–299 (1989). https://doi.org/10.1007/BF00209390

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