Abstract
Considerable empirical evidence suggests that individuals are unwilling to protect themselves against low probability-high loss events even if the costs of protection are subsidized. This behavior has been difficult to rationalize using the traditional expected utility model. This paper proposes a model of adoption of protective activities which emphasizes the importance of interpersonal communication and past experience. The time path of adoption and an equilibrium rate is characterized. Properties of the model shed light on the reasons for low usage of seat belts and limited purchase of federally subsidized flood insurance.
| Original language | English |
|---|---|
| Pages (from-to) | 1-15 |
| Number of pages | 15 |
| Journal | Journal of Economic Behavior and Organization |
| Volume | 6 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - Mar 1985 |
Austrian Fields of Science 2012
- 502052 Business administration