Risk and ambiguity aversion behavior in index-based insurance uptake decisions: Experimental evidence from Ethiopia

T.K. Belissa, Robert Lensink, M. van Asseldonk*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

3 Citations (Scopus)

Abstract

Index-based insurance (IBI) is an innovative pro-poor climate risk management strategy that suffers from low uptake. Evidence on the role of behavioral impediments in adoption of IBI is scant. We conducted lab-in-the-field experiments with 1139 smallholders out of whom 596 have adopted IBI in Ethiopia to elicit their risk and ambiguity aversion behavior, and examine whether risk and/or ambiguity aversion can explain actual IBI uptake decisions. Our study suggests that an increase in risk-aversion increases uptake, but an increase in ambiguity-aversion lowers uptake of IBI. We also find evidence that an increase in risk aversion speeds-up the uptake of IBI, while an increase in ambiguity aversion delays the adoption of IBI.
Original languageEnglish
Pages (from-to)718-730
Number of pages13
JournalJournal of Economic Behavior & Organization
Volume180
Early online date3-Aug-2019
DOIs
Publication statusPublished - Dec-2020

Keywords

  • Index-based insurance
  • Risk aversion
  • Ambiguity aversion
  • Lab-in-the-field experiment
  • DEMAND

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