Weighting Attitudes and the Demand for Flood Insurance: Understanding Probability Weighting For Low-Probability-High-Consequence-Risks

2012 ◽  
Author(s):  
Ferdinand Leopold Zahn ◽  
Stefan Neuß
Keyword(s):  
Flood Insurance ◽  
Probability Weighting ◽  
Low Probability

scholarly journals Household Portfolio Underdiversification and Probability Weighting: Evidence from the Field

2020 ◽  
Author(s):  
Stephen G Dimmock ◽  
Roy Kouwenberg ◽  
Olivia S Mitchell ◽  
Kim Peijnenburg
Keyword(s):  
Mutual Funds ◽  
Portfolio Choice ◽  
Real World ◽  
Sharpe Ratio ◽  
Probability Weighting ◽  
Representative Survey ◽  
Decisions Under Risk ◽  
Household Portfolio ◽  
Household Portfolio Choice ◽  
Low Probability

Abstract We test whether probability weighting affects household portfolio choice in a representative survey. On average, people display inverse-S-shaped probability weighting, overweighting low probability events. As theory predicts, probability weighting is positively associated with portfolio underdiversification and significant Sharpe ratio losses. Analyzing respondents’ individual stock holdings, we find higher probability weighting is associated with owning lottery-type stocks and positively skewed equity portfolios. People with higher probability weighting are less likely to own mutual funds and more likely to either avoid equities or hold individual stocks. We are the first to empirically link individuals’ elicited probability weighting and real-world decisions under risk.

scholarly journals Comparing the effects of behaviorally informed interventions on flood insurance demand: an experimental analysis of ‘boosts’ and ‘nudges’

2019 ◽  
pp. 1-31 ◽  
Author(s):  
JACOB BRADT
Keyword(s):  
Experimental Analysis ◽  
Sufficient Conditions ◽  
Individual Risk ◽  
Flood Insurance ◽  
Demand For Insurance ◽  
Risk Beliefs ◽  
Contingent Valuation Survey ◽  
Low Probability ◽  
Labor Pool ◽  
Online Labor

AbstractThis paper compares the effects of two types of behaviorally informed policy – nudges and boosts – that are designed to increase consumer demand for insurance against low-probability, high-consequence events. Using previous findings in the behavioral sciences literature, this paper constructs and implements two nudges (an ‘informational’ and an ‘affective’ nudge) and a statistical numeracy boost and then elicits individual risk beliefs and demand for flood insurance using a contingent valuation survey of 331 participants recruited from an online labor pool. Using a two-limit Tobit model to estimate willingness to pay (WTP) for flood insurance, this paper finds that the affective and informational nudges result in increases in WTP for flood insurance of roughly $21/month and $11/month relative to the boost, respectively. Taken together, the findings of this paper suggest that nudges are the more effective behaviorally informed policy in this setting, particularly when the nudge design targets the affect and availability heuristics; however, additional research is necessary to establish sufficient conditions for this conclusion.

scholarly journals Broad bracketing for low probability events

2020 ◽  
Vol 61 (3) ◽  
pp. 211-244 ◽  
Author(s):  
Shereen J. Chaudhry ◽  
Michael Hand ◽  
Howard Kunreuther
Keyword(s):  
Risk Perception ◽  
Cumulative Probability ◽  
Flood Insurance ◽  
High Stakes ◽  
Incentive Compatible ◽  
Protective Actions ◽  
The Face ◽  
Low Probability ◽  
Open Question ◽  
Probability Information

AbstractIndividuals tend to underprepare for rare, catastrophic events because of biases in risk perception. A simple form of broad bracketing—presenting the cumulative probability of loss over a longer time horizon—has the potential to alleviate these barriers to accurate risk perception and increase protective actions such as purchasing flood insurance. However, it is an open question whether broad bracketing effects last over time: There is evidence that descriptive probability information is ignored when decisions are based on “experience” (repeatedly and in the face of feedback), which characterizes many protective decisions. Across six incentive-compatible experiments with high stakes, we find that the broad bracketing effect does not disappear or change size when decisions are made from experience. We also advance our understanding of the mechanisms underlying broad bracketing, finding that, while cumulative probability size is a strong driver of the effect, this is dampened for larger brackets leading people to be less sensitive to probability size.

Improving the National Flood Insurance Program

2018 ◽  
pp. 1-15 ◽  
Author(s):  
HOWARD KUNREUTHER
Keyword(s):  
Cost Effective ◽  
Economic Incentives ◽  
Flood Insurance ◽  
Behavioral Risk ◽  
National Flood Insurance Program ◽  
Adaptation Measures ◽  
Insurance Program ◽  
Property Owners ◽  
The Usa ◽  
Low Probability

Abstract This paper highlights factors that need to be considered for improving the National Flood Insurance Program in the USA to address the biases that lead individuals to not protect themselves against low-probability, high-consequence flood events. The errors that individuals exhibit in deciding not to purchase insurance or invest in loss reduction measures prior to a disaster can be traced to the effects of six biases: myopia, amnesia, optimism, inertia, simplification and herding. Along with two guiding principles for insurance, a behavioral risk audit can assist in designing a strategy using concepts from choice architecture coupled with economic incentives to encourage property owners in hazard-prone areas to purchase insurance and invest in cost-effective adaptation measures to protect themselves against future disaster losses.

Terrorism: Low probability, high consequence

1999 ◽  
Vol 55 (6) ◽  
pp. 14-16
Author(s):  
Diego Llumá
Keyword(s):  
Low Probability

Spatial suppression due to statistical regularities is driven by distractor suppression not by target activation

2018 ◽  
Author(s):  
Michel Failing ◽  
Benchi Wang ◽  
Jan Theeuwes
Keyword(s):  
High Probability ◽  
Target Location ◽  
Target Selection ◽  
Visual Space ◽  
Alternative Interpretation ◽  
Distractor Location ◽  
Target Presentation ◽  
Statistical Regularities ◽  
Low Probability ◽  
Presentation Experiment

Where and what we attend to is not only determined by what we are currently looking for but also by what we have encountered in the past. Recent studies suggest that biasing the probability by which distractors appear at locations in visual space may lead to attentional suppression of high probability distractor locations which effectively reduces capture by a distractor but also impairs target selection at this location. However, in many of these studies introducing a high probability distractor location was tantamount to increasing the probability of the target appearing in any of the other locations (i.e. the low probability distractor locations). Here, we investigate an alternative interpretation of previous findings according to which attentional selection at high probability distractor locations is not suppressed. Instead, selection at low probability distractor locations is facilitated. In two visual search tasks, we found no evidence for this hypothesis: neither when there was only a bias in target presentation but no bias in distractor presentation (Experiment 1), nor when there was only a bias in distractor presentation but no bias in target presentation (Experiment 2). We conclude that recurrent presentation of a distractor in a specific location leads to attentional suppression of that location through a mechanism that is unaffected by any regularities regarding the target location.

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