¹Department of Risk Management and Insurance, Vienna University of Economics and Business Administration, A-1090 Vienna

Abstract

In earlier work by Slovic et al. (Journal of Risk and Insurance, 1977 pp. 237–258) studying insurance decisions under laboratory conditions, subjects showed a clear and repeated preference to purchase insurance against high-probability, low-loss events rather than the opposite. This result comes as a surprise as the primary objects for insurance are most commonly risks with some large loss potential but occurring only rarely. In subsequent studies, the reported effect was somewhat reduced but a convincing explanation for this odd behavior was not offered. The present study analyses preceding work with respect to its research design and presents an alternative problem solution.