TITLE
"Costly Probabalistic Insurance," Journal of Insurance Issues, Robert
Puelz. January 1991, Vol. XIV, No. 1, pp. 31-38. Entire
article in Acrobat format.
ABSTRACT
Kahneman and Tversky proved that the preference of regular insurance over probabilistic
insurance by expected utility maximizers was inconsistent with the risk-aversion
hypothesis given the intuitive riskiness of the probabilistic insurance game. This note
considers the idea of costly probabilistic insurance and proves that regular insurance
would be preferred to probabilistic insurance for a risk-averse expected utility
maximizer.
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