Impact of Outcome Ambiguity on Self‐Insurance and Self‐Protection: Experimental Evidence

14 Pages Posted: 10 Oct 2017

See all articles by Ozlem Yilmaz

Ozlem Yilmaz

Department of Business Administration

Date Written: October 2017

Abstract

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

Suggested Citation

Yilmaz, Ozlem, Impact of Outcome Ambiguity on Self‐Insurance and Self‐Protection: Experimental Evidence (October 2017). Bulletin of Economic Research, Vol. 69, Issue 4, pp. E112-E125, 2017, Available at SSRN: https://ssrn.com/abstract=3050207 or http://dx.doi.org/10.1111/boer.12111

Ozlem Yilmaz (Contact Author)

Department of Business Administration ( email )

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