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Ambiguity, ambiguity aversion and the coverage of uncertain risks : the case of the insurer
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 insu...
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| Format: | Thesis |
| Language: | English |
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School of Economics
2014
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| _version_ | 1867613202077974528 |
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| access_status_str | Open Access |
| author | Chelwa, Grieve |
| author2 | Pellicer, Miquel |
| author_browse | Chelwa, Grieve Pellicer, Miquel |
| author_facet | Pellicer, Miquel Chelwa, Grieve |
| author_sort | Chelwa, Grieve |
| collection | Thesis |
| description | 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. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/10215 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:32:21.936Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2014 |
| publishDateRange | 2014 |
| publishDateSort | 2014 |
| publisher | School of Economics |
| publisherStr | School of Economics |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/10215 Ambiguity, ambiguity aversion and the coverage of uncertain risks : the case of the insurer Chelwa, Grieve Pellicer, Miquel Economics 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. 2014-12-27T14:06:07Z 2014-12-27T14:06:07Z 2011 Master Thesis Masters MCom http://hdl.handle.net/11427/10215 eng application/pdf School of Economics Faculty of Commerce University of Cape Town |
| spellingShingle | Economics Chelwa, Grieve Ambiguity, ambiguity aversion and the coverage of uncertain risks : the case of the insurer |
| thesis_degree_str | Master's |
| title | Ambiguity, ambiguity aversion and the coverage of uncertain risks : the case of the insurer |
| title_full | Ambiguity, ambiguity aversion and the coverage of uncertain risks : the case of the insurer |
| title_fullStr | Ambiguity, ambiguity aversion and the coverage of uncertain risks : the case of the insurer |
| title_full_unstemmed | Ambiguity, ambiguity aversion and the coverage of uncertain risks : the case of the insurer |
| title_short | Ambiguity, ambiguity aversion and the coverage of uncertain risks : the case of the insurer |
| title_sort | ambiguity ambiguity aversion and the coverage of uncertain risks the case of the insurer |
| topic | Economics |
| url | http://hdl.handle.net/11427/10215 |
| work_keys_str_mv | AT chelwagrieve ambiguityambiguityaversionandthecoverageofuncertainrisksthecaseoftheinsurer |