Information Cascades and Insurance Demand
Start Date
April 2025
Location
MCD 208
Abstract
Insurance markets are susceptible to information cascades if decisions are made using the public information of peer insurance purchases. Given an individual’s risk of loss is challenging to comprehend, insurance buyers may learn whether their peers have purchased the same insurance. A cascade may form, for example, if I forgo insurance because all of my neighbors have also declined insurance, even though my private information suggests I should buy it. Using a laboratory experiment, we investigate whether information cascades form in insurance markets under two scenarios: when risks are correlated and uncorrelated. We also study whether the strength of information cascades in insurance depends upon the perceived relative risk preferences of the reference-peer: compared to me, are they a risky person or safe person?
Information Cascades and Insurance Demand
MCD 208
Insurance markets are susceptible to information cascades if decisions are made using the public information of peer insurance purchases. Given an individual’s risk of loss is challenging to comprehend, insurance buyers may learn whether their peers have purchased the same insurance. A cascade may form, for example, if I forgo insurance because all of my neighbors have also declined insurance, even though my private information suggests I should buy it. Using a laboratory experiment, we investigate whether information cascades form in insurance markets under two scenarios: when risks are correlated and uncorrelated. We also study whether the strength of information cascades in insurance depends upon the perceived relative risk preferences of the reference-peer: compared to me, are they a risky person or safe person?
