On the Theory of Rational Insurance Purchasing: A Note

Authors

  • ERIC P. BRIYS,

  • HENRI LOUBERGE

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    • Briys is visiting professor of finance at Concordia University, Montreal. Loubergé is professor of economics at the University of Geneva. This note was written when both authors were professors of finance at the Centre for Education and Research Applied to Management (CERAM) in Sophia Antipolis, France. The authors are grateful to an anonymous referee for helpful comments on the first version of this note. They retain responsibility for any remaining errors.


ABSTRACT

The authors consider the optimal amount of insurance purchased by an individual who behaves according to the Hurwicz criterion of choice under uncertainty. Their results are compared with earlier results obtained in alternative frameworks (expected utility maximization and Savage's regret criterion). It is shown that a positive amount deductible is often suboptimal.

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