why insure

Why insure?

Ole Peters and Alex Adamou have written a paper titled Rational insurance with linear utility and perfect information. Here they consider the insurance puzzle, namely that people are willing to buy insurance at a price which reduces the rate of change of their expected wealth (essentially because it includes the insurer’s profit). Classical economics explains this prima facie irrational behaviour by appealing to risk aversion (via utility theory) or lack of information. Instead, a simpler and more plausible model of human decision-making shows that insurance contracts can be win-win deals, in which both buyer and seller increase the time-average growth rate of their wealth.
The manuscript is available on arXiv: http://arxiv.org/abs/1507.04655

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>