Behaviour in insurance coverage When psychographic traits concur with socio-demographic and economic conditions

The international insurance industry is very large and involves trillions of euros in transactions each year. However, the evidence that many people participate in this market should not convey the idea that this participation is always efficient and based on conscious behaviour. Emerging neuroeconomic evidence suggests that insurance decisions are often reflexive, and thus impacted simultaneously by logical and emotional processes. Sometimes, people buy insurance coverage as holding a policy can also bring emotional gains. This book, therefore, tries to shed some light on what drives insurance demand. The analysis examines insurance decisions through the lenses of both theoretical and empirical studies; it also proposes some novel evidence on real-life insurance purchasing taking a variety of personality and psycho-physiological traits into consideration. This book should be of interest for insurers, who should strive to learn all they can about factors that motivate customers to purchase, for regulators, who must create a protective framework that is consistent with actual consumer behaviour, but also for individuals, in order to increase the self-consciousness of their actions

Gender differences in attitudes towards risk and ambiguity: when psycho-physiological measurements contradict sex-based stereotypes

ABSTRACT: This paper investigates gender differences in behaviour under uncertainty, as this personal condition influences entrepreneurship. We explore risk taking attitude and ambiguity aversion used in economic decisions on a sample of 645 individuals. We collect objective measurements of risk/ambiguity aversion from a psycho-physiological task, and we gather self-assessments of individual risk tolerance from a verbatim questionnaire. Our findings show no statistical gender difference when risk/ambiguity attitudes originate from the psycho-physiological task. Conversely, self-evaluated risk tolerance indicates that women define themselves as risk averse, whereas men define themselves as risk lovers. These differences are statistically significant and persist in a multivariate framework, excluding an indirect effect due to education, self-esteem, wealth, impulsivity, and other controls. This supports the concept that self-assessed risk attitude originates from an overall (wrong) social construct. Women evaluate themselves coherently with this sex-based stereotype and end up reinforcing the social idea of their inferior attitude to assume risks

Misclassifications in Financial Risk Tolerance

This paper analyzes the empirical risk tolerance of individuals. Rare empirical evidence shows the role of personal behavior in both propensity toward financial risk and risk aversion. By using a test which mimics the financial decision process in a laboratory setting for 445 individuals, we obtained an ex-post experimental measure for individual risk tolerance. Predictive classification models allow us to evaluate the forecasting accuracy of two alternative risk tolerance assessments: a psychometrically derived questionnaire and a psycho- physiological experiment. Our findings show that misclassifications resulting from the questionnaire are massive: individuals asked to self-assess their risk tolerance reveal a high probability of failing their judgment, i.e., they behave as if they were risk takers, while defining themselves as risk-averse (and vice versa). Conversely, when considering somatic activation, misclassifications are considerably lower. Emotions are confirmed to drive the financial risk- taking process, enhancing the accuracy of the individual risk tolerance forecasting activity

1 Do “gut feelings ” affect insurance demand?

researchers to enrich the sample by including a further 200 individuals (Year 2010

Misclassifications in financial risk tolerance

This paper analyses the empirical risk tolerance of individuals and the role of physiological measures of risk perception. By using a test that mimics the financial decision process in a laboratory setting (N\u2009=\u2009445), we obtained an ex-post empirical measure of individual risk tolerance. Predictive classification models allow us to evaluate the accuracy of two alternative risk-tolerance forecasting methods: a self-report questionnaire and a psycho-physiological experiment. We find that accuracy of self-assessments is low and that misclassifications resulting from questionnaires vary from 36 to 65%: individuals asked to self-evaluate their risk tolerance reveal a high probability of failing their judgement, i.e. they behave as risk takers, even if, before the task, they define themselves as risk averse (and vice versa). Conversely, when the risk-tolerance forecast is obtained from individuals\u2019 physiological arousal, observed via their somatic activation before risky choices, the rate of misclassification is considerably lower (~17%). Emotions are confirmed to influence the financial risk-taking process, enhancing the accuracy of the individual risk-tolerance forecasting activity. Self-report questionnaires, conversely, could lead to inadequate risk-tolerance assessments, with consequent unsuitable investment decisions. Bridging these results from the individual to the institutional level, our findings should enhance cautiousness, among regulators and financial institutions, on the (ab)use of risk tolerance questionnaires as tools for classifying individuals\u2019 behaviour under risk