INTRODUCTION: SYMPOSIUM ON THE METHODOLOGIES OF BEHAVIORAL INSURANCE

• Published date: 01 January 2016
• Date: 01 January 2016
• DOI: http://doi.org/10.1111/jori.12144

INTRODUCTION:SYMPOSIUM ON THE METHODOLOGIES OF

BEHAVIORAL INSURANCE

The generic insurance product involves an agent giving up a certain amount of money

ex ante some risky event in the expectation of being given some money in the future if

something unfortunate occurs. It is immediate that “behavioral economics” has

something to say about the positive and normative evaluation of insurance from the

perspective of the insured. Risk preferences play a role, and there is now a rich body of

theory and empirical evidence that some agents behave differently than the standard

Expected Utility Theory. Time preferences play a role, as the premium is typically

paid prior to the stream of expected benefits in the future, and again there is a rich

body of theory and empirical evidence that some agents deviate from the standard

Exponential discounting model. Subjective beliefs play a role, as perceptions of loss

probabilities need not be the same as actuarial assessments, nor need they be updated

over time consistently with Bayes Rule. Trust plays a role, as there can be “fine print,”

lawyers, and outright corruption in any contract, leading to nonperformance risk.

Finally, some have questioned whether models of probabilities and time-dependent

and state-dependent payment structures are sufficient to describe the insurance

decision completely. Some have argued for an explanatory role for affective, or

“emotional,” components in the decision framework for insurance demand.

These “behavioral moving parts” combine to allow one to explain a wide range of

possible behaviors, and the general scientific challenge is how to rigorously identify

each of their roles. Doing so, in a structural manner, clearly matters for normative

policy design. Do we need better products, better decisions about insurance products,

or a healthy mix of both?

Some years ago, we started an annual series of workshops on Behavioral Insurance

and Risk Management, alternating between Munich (MRIC, the Munich Risk and

Insurance Center, Ludwig-Maximilians-Universit€

at) and Atlanta (CEAR, the Center

for the Economic Analysis of Risk, Georgia State University). This symposium of the

Journal of Risk and Insurance reflects research in this vein.

Research in behavioral insurance approaches this generic characterization of the insurance

product by allowing a wide range of assumptions about behavior. It is possible to identify

five clear methodologies with behavioral insurance, with surprisingly little overlap to date.

1. Theorizing With Behaviorally Motivated Assumptions. Some of the earliest

behavioral insurance research involved the use by theorists of alternative

© 2016 The Journal of Risk and Insurance. Vol. 83, No. 1, 43–47 (2016).

DOI: 10.1111/jori.12144

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