Ambiguity, ambiguity aversion and the coverage of uncertain risks : the case of the insurer

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dc.contributor.advisorPellicer, Miquelen_ZA
dc.contributor.authorChelwa, Grieveen_ZA
dc.date.accessioned2014-12-27T14:06:07Z
dc.date.available2014-12-27T14:06:07Z
dc.date.issued2011en_ZA
dc.description.abstractAmbiguity aversion is defined as an aversion to any mean-preserving spread in the probability space. Using the Smooth Ambiguity Model proposed by Klibanoff, Marinacci and Mukerji (2005), we show that ambiguity aversion results in a reduction in the proportion of insurance coverage offered by an insurer. This is because an ambiguity averse insurer calculates expected utilities by using a 'distorted' probability that raises the marginal disutility of wealth in the loss state. We also show that, in general, an ambiguity averse insurer will not offer more coverage to wealthier agents. Wealthier agents enjoy more coverage when the subjective average probability of loss is significantly high. Our results go a long way in reconciling theoretical models of insurance under ambiguity with the empirical finding that insurers are sensitive to ambiguity.en_ZA
dc.identifier.apacitationChelwa, G. (2011). <i>Ambiguity, ambiguity aversion and the coverage of uncertain risks : the case of the insurer</i>. (Thesis). University of Cape Town ,Faculty of Commerce ,School of Economics. Retrieved from http://hdl.handle.net/11427/10215en_ZA
dc.identifier.chicagocitationChelwa, Grieve. <i>"Ambiguity, ambiguity aversion and the coverage of uncertain risks : the case of the insurer."</i> Thesis., University of Cape Town ,Faculty of Commerce ,School of Economics, 2011. http://hdl.handle.net/11427/10215en_ZA
dc.identifier.citationChelwa, G. 2011. Ambiguity, ambiguity aversion and the coverage of uncertain risks : the case of the insurer. University of Cape Town.en_ZA
dc.identifier.ris TY - Thesis / Dissertation AU - Chelwa, Grieve AB - Ambiguity aversion is defined as an aversion to any mean-preserving spread in the probability space. Using the Smooth Ambiguity Model proposed by Klibanoff, Marinacci and Mukerji (2005), we show that ambiguity aversion results in a reduction in the proportion of insurance coverage offered by an insurer. This is because an ambiguity averse insurer calculates expected utilities by using a 'distorted' probability that raises the marginal disutility of wealth in the loss state. We also show that, in general, an ambiguity averse insurer will not offer more coverage to wealthier agents. Wealthier agents enjoy more coverage when the subjective average probability of loss is significantly high. Our results go a long way in reconciling theoretical models of insurance under ambiguity with the empirical finding that insurers are sensitive to ambiguity. DA - 2011 DB - OpenUCT DP - University of Cape Town LK - https://open.uct.ac.za PB - University of Cape Town PY - 2011 T1 - Ambiguity, ambiguity aversion and the coverage of uncertain risks : the case of the insurer TI - Ambiguity, ambiguity aversion and the coverage of uncertain risks : the case of the insurer UR - http://hdl.handle.net/11427/10215 ER - en_ZA
dc.identifier.urihttp://hdl.handle.net/11427/10215
dc.identifier.vancouvercitationChelwa G. Ambiguity, ambiguity aversion and the coverage of uncertain risks : the case of the insurer. [Thesis]. University of Cape Town ,Faculty of Commerce ,School of Economics, 2011 [cited yyyy month dd]. Available from: http://hdl.handle.net/11427/10215en_ZA
dc.language.isoengen_ZA
dc.publisher.departmentSchool of Economicsen_ZA
dc.publisher.facultyFaculty of Commerceen_ZA
dc.publisher.institutionUniversity of Cape Town
dc.subject.otherEconomicsen_ZA
dc.titleAmbiguity, ambiguity aversion and the coverage of uncertain risks : the case of the insureren_ZA
dc.typeMaster Thesis
dc.type.qualificationlevelMasters
dc.type.qualificationnameMComen_ZA
uct.type.filetypeText
uct.type.filetypeImage
uct.type.publicationResearchen_ZA
uct.type.resourceThesisen_ZA
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