Impact of Outcome Ambiguity on Self‐Insurance and Self‐Protection: Experimental Evidence
14 Pages Posted: 10 Oct 2017
Date Written: October 2017
This experimental study examines and compares individual valuations of the two risk reduction mechanisms: self‐insurance and self‐protection in risky versus ambiguous outcome situations. Results confirm that individuals do not perceive these mechanisms differently under risk. Moreover, ambiguity in the outcome (i.e., size of loss) affects valuations weakly, and changing representations of ambiguity do not alter valuation. In general, individuals are found to be ambiguity averse for low sizes of loss and ambiguity neutral for high sizes of loss, regardless of the probability of loss. Finally, no strong support is found for any particular model of ambiguity.
Keywords: ambiguity, self‐insurance, self‐protection
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