Limited Information and its Impact on a Policyholder's Optimal Choice on Deductibles
Journal
I.VW-HSG Working Papers on Risk and Insurance
Type
journal article
Date Issued
2022
Author(s)
Abstract
When determining the optimal deductible level for an insurance policy, a policyholder faces two sources of uncertainty. First, uncertainty arises from the randomness of future losses. Second, the opacity of the functional forms of the policyholder’s loss distribution and utility function also contributes to uncertainty. While the academic
literature focuses on the former, we additionally include limited information on these functional forms in our model setting to reflect real-world decision making. That is, we draw on an expected utility framework and analyze the relationship between optimal deductible levels under limited and full information. We also derive several decision rules under limited information in order to approximate the optimal deductible level under full information. To support real-world decision making, these rules could be easily implemented in an online decision aid.
literature focuses on the former, we additionally include limited information on these functional forms in our model setting to reflect real-world decision making. That is, we draw on an expected utility framework and analyze the relationship between optimal deductible levels under limited and full information. We also derive several decision rules under limited information in order to approximate the optimal deductible level under full information. To support real-world decision making, these rules could be easily implemented in an online decision aid.
Language
English
HSG Classification
contribution to scientific community
Refereed
No
Publisher
Institut für Versicherungswirtschaft (I.VW-HSG)
Number
257
Subject(s)
Division(s)
Eprints ID
267108