TITLE
"The Impact of Loss Dimensions in Laboratory Insurance Markets,"
Journal of Insurance Issues, Arthur
T. Cox. October 1993, Vol. XVI, No. 2, pp. 29-40.
ABSTRACT
This paper examines the impact of severity and the probabilities of losses on the behavior
of decision makers in an experimental market for insurance. Two subjects were paired, with
one subject acting as the insurer and the second as the insured. Eighty-one pairs of
subjects were presented with four loss distributions. Their task was to determine a
mutually agreeable price for zero deductible, 1 00 percent coverage for each loss
situation. The four loss situations differed with respect to the exact distributions of
severity and probability. However, the distributions were perceived by the subjects as
equivalent in terms of the expected value and variance of the loss. The results show the
probability dimension was a significant factor in the premium. Neither severity nor the
reference point of the decision makers was significant. It appears gender differences may
play a role but the data was not such that anything more than casual observations can be
made.
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