An Experimental Study of Insurance Decisions

This paper describes an experimental survey of insurance preferences, administered to college students and clients of an insurance agency. Expected utilityt heory is contrasted with prospect theory, a recently developed alternative model of choice. The results lend more support to prospect theory than utility theory. However, insurance decisions appear more complex than either model suggests. The findings support earlier field and laboratory studies highlighting people's limited abilities to process information. Further research is needed to understand better the influence of financial status, statistical knowledge, cognitive style, and context and format effects on insurance purchasing decisions.