Effect of regret sensitivity on self-insurance and self-protection

Yoichiro Fujii, Yusuke Osaki*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We examine how regret sensitivity influences two types of effort to prevent losses: self-insurance and self-protection. Individuals are called regret sensitive when they suffer disutility from the anticipated regret of considering their ex post best wealth. The keys to determining the effect of regret are the probability of loss in self-insurance and the sensitivity to regret in self-protection. Comparing the case of expected utility, regret-sensitive individuals tend to increase (decrease) their exertion of self-insurance when the probability of loss is low (high). Regret-sensitive individuals tend to decrease (increase) self-protection when they care about regret sufficiently (insufficiently). This result illustrates observed loss prevention practices.

Original languageEnglish
JournalApplied Economics
DOIs
Publication statusAccepted/In press - 2022
Externally publishedYes

Keywords

  • Comparative statics
  • fear of ruin
  • nonexpected utility
  • prevention

ASJC Scopus subject areas

  • Economics and Econometrics

Fingerprint

Dive into the research topics of 'Effect of regret sensitivity on self-insurance and self-protection'. Together they form a unique fingerprint.

Cite this