Behavioral Economics

Anustup Kundu (University of Helsinki)

  • Do risk and time preference explain household’s demand for microinsurance? A lab in the field approach

  • Microinsurance is one of the key instrument in addressing the risk and vulnerability of economic shocks for the low-income households in the global south. However, microinsurance take-up globally is puzzlingly low. The question is why? Using a primary panel data with incentivized lab-in-the-field experiments conducted in five rural villages in India, the paper first examines the nature of risk and time preference of the individuals and then examines the effect of risk and time preference, and the effect of prior shocks on microinsurance take-up. The findings highlight few key insights. First, I find that majority of the individuals are not only risk averse but they are loss averse and they overweight the probability of the occurrence of small events but underweight the occurrence of large events. Second, I find that not only do the subjects have time inconsistent preferences but they are present biased. Third, I find that — impatient individuals are less likely to buy any insurance while risk seeking individuals and individuals who experienced a prior shocks such as death in the family are more likely to buy any insurance. Finally, I find that individuals who underweight large probability incidents are less likely to take up health insurance.

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  • Address:
Marja-Liisa Halko

University of Helsinki

marja-liisa.halko at