Demand for Insurance under Rank Dependent Expected Utility Model

This paper considers the demand for insurance under the non-expected utility theory. We apply the Rank Dependent Expected Utility model (RDEU) which involves, besides the standard utility function, a risk perception function. In this context, insurance choices empirically observed, but impossible to validate with the Expected Utility model (EU), are explained: i. When the insurance premium is actuarially fair, risk averse agents can choose a partial (or no) insurance; ii. Instead, with loaded premium, agent can buy a full insurance contract. In insurance context, agents behave not only according to their probability distribution but also according to their attitude towards risk