TITLE
"Probability Weighting in Damage Claiming Decisions," Journal of Insurance Issues, Yoram Eden and Doron Sonsino, Fall 2006, Vol. 29, No. 2, pp. 179-192. Full-text articles soon will be available through ABI/INFORM and EBSCO. Entire article in Acrobat format.

ABSTRACT
We present experimental evidence suggesting that insurance policyholders ignore the possibility of damage recurrence when deciding whether to submit a claim for a current small loss. The neglect results in successive claiming for current small damage levels. When the probability of damage recurrence is disclosed, subjects increase their cutoff damage for submitting a claim, and the recurrence probability is significantly overweighted in accordance with Prospect Theory principles. Our results suggest that regulatory agencies and insurance companies should consider disclosure of statistical information on damage recurrence to policyholders. [Key words: claim decisions, damage recurrence, bonus-malus, Prospect Theory, probability weighting.]