Empirical evidence has shown that people are unwilling to insure rare losses at subsidized premiums and at the same time take-up insurance for moderate risks at highly loaded premiums. This paper explores whether prospect theory, in particular diminishing sensitivity and loss aversion, can...

Recent studies in the marketing literature developed a new method for eliciting willingness to pay (WTP) with an open-ended elicitation format: the Range-WTP method. In contrast to the traditional approach of eliciting WTP as a single value (Point-WTP), Range-WTP explicitly allows for preference...

Most simulated micro-founded macro models use solely consumer-demand aggregates in order to estimate deep economy-wide preference parameters, which are useful for policy evaluation. The underlying demand-aggregation properties that this approach requires, should be easy to empirically disprove:...

This paper analyzes insurance demand under prospect theory in a simple model with two states of the world and fair insurance contracts. We argue that two different reference points are reasonable in this framework, state-dependent initial wealth or final wealth after buying full insurance....

Modern macroeconomics empirically addresses economy-wide incentives behind economic actions by using insights from the way a single representative household would behave. This analytical approach requires that incentives of the poor and the rich are strictly aligned. In empirical analysis a...

We use a survey method designed to capture whether the consumption sharing ability of households varies systematically at different levels of well being. Evidence from Cyprus reconfirms our previous results from other countries, that household consumption economies of scale increase as the...