This paper studies the effect of increased risk aversion on self-insurance and self-protection in a two-period expected utility framework in which the risk-reducing investment precedes its effect. In contrast to monoperiodic models, self-insurance and self-protection react very similarly to an...

This paper studies the effect of increased risk aversion on self-insurance and self-protection in a two-period expected utility framework in which the risk-reducing investment precedes its effect. In contrast to monoperiodic models, self-insurance and self-protection react very similarly to an...

We analyze the effect of ambiguous loss probabilities on competitive insurance markets with asymmetric information. We characterize equilibria under actuarially fair pricing with preferences that are second-order ambiguity averse (have smooth indifference curves). We also show existence of...

I provide new results on how risk preferences affect optimal prevention. I identify a comparative risk aversion and a comparative downside risk aversion effect and emphasize those cases where both effects are aligned. Alignment depends on a probability threshold, which, in turn, only depends on...

We analyze how loss aversion affects prevention in Köszegi and Rabin's (2007) choice-acclimating personal equilibrium. Individuals take into account the financial consequences of prevention but also expected sensations of disappointment or elation against a stochastic reference point. Loss...

This paper studies the effect of increased risk aversion on self-insurance and self-protection in a two-period framework. Here risk management incentives and consumption smoothing incentives are traded off, and the monotonic relationship between self-insurance and risk aversion may no longer...

We analyze optimal insurance design for a risk- and ambiguity-averse policyholder who is uncertain about the distribution of losses and faces linear transaction costs. We use smooth ambiguity preferences, a flexible ambiguity structure, and focus on indemnity schedules that satisfy the principle...