Human behavior and decision-making under risk and ambiguity are influenced by automatisms, habits, and other phenomena that can induce deviations from ‘rationality’. In recent years, considerable empirical and experimental evidence has documented that insurance-related financial decision-making in particular often does not comply with the standard economic models of choice under uncertainty. Our assessment of actuarial and insurance-related financial risks and the resulting behavior can often be characterized by anomalies and are highly situation dependent.
Studies towards improving our understanding of decision-making and evaluation of risk and ambiguity in insurance require state-of-the-art mathematical and economic models as well as sophisticated quantitative methods, tools, and techniques to analyze them. This special issue aims at bringing together a fine collection of papers addressing this common challenge. Envisioned applications of the results can lead to better alignment of insurers’ strategies with their clientele when designing products, sharing information, calculating premia, and developing risk management policies; to better understanding by insureds as to how to improve their insurance decision-making; and to an improved knowledge base for regulators concerning the behavioral mechanisms that drive the market they regulate.
Subtopics include:
Optimal consumption and portfolio choice beyond rational decision-making
Loss aversion, habit formation, hyperbolic discounting, and probability weighting in insurance
Annuity puzzles
Risk measures and non-expected utility
Evaluation and pricing of risk and ambiguity
Optimal insurance design and risk sharing under non-standard preferences
Time-inconsistent behavior under risk and ambiguity