Publication detail

Demand function for insurance: comparison of maximization of Pareto probability of survival with von Neumann´s theory EUT theory EUT and with prospect theory of Kahnemana and Tversky

Author(s): prof. RNDr. Jiří Hlaváček CSc., Michal Hlaváček
Type: Articles in refereed journals
Year: 2007
Number: 2
ISSN / ISBN: ISSN 1802-4696
Published in: AUCO - Czech Economic Review
Publishing place: Prague
Keywords: human decisions under risk, probability of agent’s survival, expected-utility theory, asymmetric value function
JEL codes: T82
Suggested Citation: Hlaváček J., Hlaváček M.: Poptávková funkce na trhu s pojištěním: porovnání maximalizace paretovské pravděpodobnosti přežití s teorií EUT von Neumanna a Morgensterna a s prospektovou teorií Kahnemana a Tverského. AUCO - Czech Economic Review, Praha 2007/2
Grants: 402/07/0890 GA CR (2007-2009): Network Approaches to Economic Modeling IES Research Framework Institutional task (2005-2011) Integration of the Czech economy into European union and its development
Abstract: This paper presents the results of a comparison of an original theoretical concept of modeling human decisions under risk with two well-known models. In the paper the demand function for insurance is constructed for the model of maximization of the probability of agent’s (economical) survival. This demand function is compared with the demand function in two other models: the expected-utility theory (von Neumann, Morgenstern) and the asymmetric value function (Kahneman, Tversky). While in the expected-utility model the poorest agents are most interested in insurance, in the Kahneman-Tversky model the poorest agents do not buy insurance because of their liking for risk. The model of maximisation of the probability of survival corresponds better to the real structure of the insured: neither extremely rich people, nor extremely poor people accept insurance contracts. The former do not accept the game because of the negative expected value of the gains. For the latter the insurance is too expensive in
relation to their income.
Downloadable: 2007-2 Hlavacek, Hlavacek




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