A Proposal to Construct ‘Behavioral Insurance Theory’
Geico & Genre get ready Behavioral Insurance Theory is around the corner…
Click Here To Read: A Proposal to Construct ‘Behavioral Insurance Theory’
Abstract (Via SSRN)
Traditional insurance economics derives some definite conclusions using the neoclassical economics method. However, those conclusions are too abstract to explain phenomena in the real insurance market. In other words, a number of anomalies remain that are not explained by traditional insurance economics. In this paper, in order to solve this problem, we propose the development of a “behavioral insurance theory,” which is influenced by the establishment of “behavioral finance,” which in turn emerged from the field known as “behavioral economics,” and in which the analysis is less bound to subjects in the market. This proposal means a paradigm shift in traditional insurance theory.
Additional Excerpts (Via SSRN)
In orthodox insurance theory, the economic subject under pure risk is supposed to be “homo economicus” who behaves according to strict economic rationality. However, there is no guarantee that such a subject would make a calm decision in an abnormal or emergency case. According to Kahneman & Tversky [1979] from the standpoint of cognitive psychology, the judgment of humans confronting stochastic phenomena is not necessarily consistent; there are a significant number of anomalies that cannot be explained by the EUH. Thus, a “paradigm shift” is needed in orthodox insurance theory.
One typical difference between Japan and the U.S.A. arises in the problem of “Dread Disease Service” in the life insurance market. In the U.S.A., a buyer emerges to buy the insurance policy from a policyholder who has been determined by his doctor to become dead soon. In Japan, by contrast, the established life insurance company exclusively repurchases those policies.
Click Here To Read: A Proposal to Construct ‘Behavioral Insurance Theory’
