11.4 DEMAND FOR INSURANCE AGAINST CATASTROPHIC EVENTS
This section outlines a benchmark model of demand for insurance by consumers using
the concepts of expected utility [E(U)] theory and compares this normative theory with
two descriptive models. The section concludes by examining actual behavior by insurers
that does not conform to the E(U) and explains these anomalies using concepts from
behavioral economics.
11.4.1A Benchmark Model of Demand
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The benchmark model of demand is based on the assumption that insurance buyers
maximize their expected utility. Individuals purchase insurance because ...
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