Studies from University of St. Gallen Further Understanding of Economic Behavior and Organization (Balancing the Desire for Privacy Against the Desire To Hedge Risk)

2021 FEB 26 (NewsRx) -- By a News Reporter-Staff News Editor at Insurance Daily News -- Current study results on Economics - Economic Behavior and Organization have been published. According to news reporting originating from St. Gallen, Switzerland, by NewsRx correspondents, research stated, “An individual’s desire to hedge risks, as implied by risk aversion, is accepted as a normative paradigm and documented as valid descriptively. Insurance markets satisfy this desire, wherein the individual’s aversion to bear risk allows firms to demand a markup on the expected value of the insured loss.”

Financial support for this research came from Dr. Hans Kessler Fund.

Our news editors obtained a quote from the research from the University of St. Gallen, “Insurance firms incrementally introduce digital monitoring technology into their policies, making policyholder’s behavior transparent. We analyze the implications of such transparency insurance contracts for willingness to pay in a framed behavioral experiment and find that the loss of privacy in such contracts marginalizes the potential profits that insurers could earn on their policies. In particular, our results suggest that the reduction in willingness to pay from introducing digital monitoring is in the range of 25-50% of the expected loss. While an absolute as opposed to a relative monetary valuation concept of privacy appears more likely to explain our data, we cannot clearly confirm this conjecture empirically. Heterogeneous treatment effects for risk preferences are suggestive for increasing utility losses from transparency policies with increasing risk aversion but we also observe indications of nonlinearities in this relationship.”

According to the news editors, the research concluded: “Probability misperception is a salient characteristic of our experimental population, suggesting that profitability is less threatened under low-frequency risks as opposed to high-frequency risks.”

This research has been peer-reviewed.

For more information on this research see: Balancing the Desire for Privacy Against the Desire To Hedge Risk. Journal of Economic Behavior & Organization, 2020;180:608-620. Journal of Economic Behavior & Organization can be contacted at: Elsevier, Radarweg 29, 1043 Nx Amsterdam, Netherlands. (Elsevier - www.elsevier.com; Journal of Economic Behavior & Organization - http://www.journals.elsevier.com/journal-of-economic-behavior-and-organization/)

The news editors report that additional information may be obtained by contacting Christian Biener, University of St. Gallen, Girtannerstr 6, Ch-9010 St Gallen, Switzerland. Additional authors for this research include Martin Eling and Martin Lehmann.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1016/j.jebo.2020.03.007. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.

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