Insurance Contracts when Individuals “Greatly Value” Certainty : Results from a Field Experiment in Burkina Faso
Elena Serfilippi, Michael Carter, Catherine Guirkinger
In discussing the paradoxical violation of expected utility theory that now bears his name, Maurice Allais noted that individuals tend to "greatly value" payoffs that are certain. Allais' observation would seem to imply that people will undervalue insurance relative to the predictions of expected utility theory because as conventionally constructed, insurance offers an uncertain benefit in exchange for a certain cost that certainty-loving individuals will overvalue. Pursuing this logic, we implemented insurance games with cotton farmers in Burkina Faso. On average, farmer willingness to pay for insurance increases significantly when a premium rebate framing is used to render both costs and benefits of insurance uncertain. We show that the impact of the rebate frame on the willingness to pay for insurance is driven by those farmers who exhibit a well-defined discontinuous preference for certainty, a concept that we adapt from the u-v model of utility and measure with a novel behavioral experiment. Given that the potential impacts of insurance for small scale farmers are high, and yet demand for conventionally framed contracts is often low, the insights from this paper suggest welfare-enhancing ways of designing insurance for low-income farmers
Year of publication: |
September 2018
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Authors: | Serfilippi, Elena |
Other Persons: | Carter, Michael (contributor) ; Guirkinger, Catherine (contributor) |
Institutions: | National Bureau of Economic Research (contributor) |
Publisher: |
2018: Cambridge, Mass : National Bureau of Economic Research |
Subject: | Burkina Faso | Verhaltensökonomik | Behavioral economics | Feldforschung | Field research | Zahlungsbereitschaftsanalyse | Willingness to pay | Agrarversicherung | Agricultural insurance | Kleinbauern | Smallholders |
Saved in:
freely available
Extent: | 1 Online-Ressource illustrations (black and white) |
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Series: | NBER working paper series ; no. w25026 |
Type of publication: | Book / Working Paper |
Language: | English |
Notes: | System requirements: Adobe [Acrobat] Reader required for PDF files Mode of access: World Wide Web Hardcopy version available to institutional subscribers |
Other identifiers: | 10.3386/w25026 [DOI] |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10012480679