Publication detail

Demand for Insurance: Comparison of von Neumann-Morgenstern's and Kahneman-Tverovsky's Approaches

Author(s): prof. RNDr. Jiří Hlaváček CSc., Michal Hlaváček
Type: IES Working Papers
Year: 2006
Number: 14
Published in: WP IES FSV UK
Publishing place: Praha
Keywords: decisions under risk, demand function for insurance, maximization of the probability of agent’s (economical) survival.
JEL codes: G15
Suggested Citation: Hlaváček, J., M. Hlaváček (2006). “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” IES Working Paper 14/2006, IES FSV. Charles University.
Grants: IES Research Framework Institutional task (2005-2011) Integration of the Czech economy into European union and its development
Abstract: This paper shows results of comparison of the original theoretical conception 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 models: the expected-utility theory (von-Neumann, Morgenstern) and the asymmetric value function (Kahnemann, Tversky). While in the expected-utility model the purest agents are interested in insurance in the first place, in the model of Kahnemann-Tversky purest agents do not buy insurance because of their liking for risk. The model of maximization of the probability of survival corresponds better to the real structure of insured: neither extremely rich people, nor extremely poor people accept insurance contracts. The first ones do not accept the game because of negative expected value of gains, for the second ones is the insurance – in relation to their income - too expensive.
Downloadable: WP 2006_14_Hlavacci




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