Essays on Behavioral Economics and Decision Making under Risk and Uncertainty

Le résumé en français n'a pas été communiqué par l'auteur.Here, we study insurance decisions when the policyholder evaluates insurance with narrow framing. We show that due to aversion to risk on the net insurance payoff, narrow framing reduces insurance demand in the form of both coinsurance and deductible insurance. We also show that the optimal insurance contract involves a deductible and the coinsurance of losses above the deductible when transaction costs depend on the actuarial value of the policy. In an incentivized lab experiment, we document substantial effects of narrow framing on hedging. By estimating a structural model, we find that people give a weight of 43% to the utility from evaluating insurance in isolation and 57% to the hedging value of the contract. We also find that individuals with lower cognitive abilities and lower demand from insurance place a significantly higher weight on the evaluation of insurance in isolation. Risk is rarely an individual phenomenon and often shared in groups and households. In the case of informal insurance situations, individual risk preferences have to face the risk preferences of the group. We study for the case of spouses, how individual versus household risk preferences interact in an experimental paradigm. 202 cohabiting spouses (101 couples) participated in a controlled experimental risk-taking task. We focus on a household risk task, in which spouses face the choice between an option in which risk is correlated (high household risk, low inequality among spouses) and an option allowing for hedging (low household risk, high inequality among spouses). We show that spouses are mainly influenced by household risk and do not react to inequality as long as payoffs are symmetric. However when payoffs become asymmetric, because one of the spouses risk is reduced, we observe a change in preferences. Specifically our results suggest that households put a higher weight on men’s individual risks. We further observe that married couples put a higher weight on expected utilities from joint household payoffs. Prevention decisions that reduce individuals’ health risks are important, generally irreversible, and particularly difficult since they imply a trade-off between two important attributes: the safety and its cost. All those features make regret more likely to be anticipated. In this paper, we study the willingness to pay for reductions in health risks within a framework of anticipated regret. We show that with other things being equal, an individual who is disproportionately averse to large regrets has a higher willingness to pay than a standard expected utility individual. This notion of regret aversion has been shown to be able to explain many decision patterns which violate standard expected utility theory. Moreover, the effect of regret aversion on willingness to pay can be interpreted as if the regret averse individual overweighs risk reductions due to prevention, i.e., probability overweighting effect. We further discuss how the resolution of uncertainty may affect the regret averse individual’s willingness to pay