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2015/2016  KAN-CCMVV4041U  Behavioral Risk Management and Insurance - cancelled

English Title
Behavioral Risk Management and Insurance - cancelled

Course information

Language English
Course ECTS 7.5 ECTS
Type Elective
Level Full Degree Master
Duration One Semester
Start time of the course Autumn
Timetable Course schedule will be posted at calendar.cbs.dk
Study board
Study Board for MSc in Economics and Business Administration
Course coordinator
  • Morten Lau - Department of Economics (ECON)
Kontaktinformation: https:/​/​e-campus.dk/​studium/​kontakt eller Contact information: https:/​/​e-campus.dk/​studium/​kontakt
Main academic disciplines
  • Finance
  • Economics
Last updated on 24-06-2015
Learning objectives
To achieve the grade 12, students should meet the following learning objectives with no or only minor mistakes or errors: Students having successfully participated in the course are able to:
  • Evaluate the effects of behavioral decision models on risk management and insurance markets.
  • Evaluate experimental evidence on preferences over risk, ambiguity and time delay, which are key behavioral traits in behavioral decision models.
  • Undertake welfare evaluations of risk management and insurance products and regulatory policies.
Course prerequisites
A sound knowledge of microeconomics, game theory, finance, and corporate finance is required.
Behavioral Risk Management and Insurance:
Exam ECTS 7,5
Examination form Written sit-in exam
Individual or group exam Individual
Assignment type Written assignment
Duration 4 hours
Grading scale 7-step scale
Examiner(s) One internal examiner
Exam period Winter
Aids allowed to bring to the exam Closed Book: no aids
Make-up exam/re-exam
Same examination form as the ordinary exam
If the number of registered candidates for the make-up examination/re-take examination warrants that it may most appropriately be held as an oral examination, the programme office will inform the students that the make-up examination/re-take examination will be held as an oral examination instead.
Course content and structure

Behavioral risk management and insurance applies alternative models of human behavior to risk

management and insurance decisions. The use of alternative models of decision making allows an

evaluation of the effect of different behavioral assumptions on inferences about insurance markets

and risk management.

The course will consider theoretical, experimental and econometric applications of different

behavioral assumptions. We will review the literature and provide a systematic overview of the field

of behavioral risk management and insurance. We will consider the effect of allowing for rankdependent

probability weighting, loss aversion, ambiguity and the presence of traded and non-traded

assets on the classic theorems of risk management and insurance economics. The course will also

consider experimental evidence on different facets of insurance and risk management tools from the

laboratory and the field, including randomized control trials of alternative insurance products.

Finally, the course will consider the subtle econometric issues that arise when one estimates models

of behavior towards risk management and insurance, particularly when using naturally occurring


A unifying theme of the course is the importance of allowing for alternative behavioral assumptions

when undertaking welfare evaluations of risk management and insurance products and regulatory

policies. The course also contains numerous cautions about subtleties in theoretical, experimental

and econometric work in the field of behavioral risk management and insurance

Teaching methods
The course has 33 hours divided across 11 sessions. In some weeks class activities will be extended
to include experiments, student workshops, student presentations and exercises
Expected literature

Abdellaoui, Mohammed, Baillon, Aurélien, Placido, Laetitia and Wakker, Peter P., “The Rich Domain of Uncertainty: Source Functions and Their Experimental Implementation,” American Economic Review, 101(2), April 2011, 695-723.


Andersen, Steffen; Fountain, John; Harrison, Glenn W., and Rutström, E. Elisabet, “Estimating

Subjective Probabilities,” Journal of Risk and Uncertainty, 48, 2014, 207-229.


Andersen, Steffen; Harrison, Glenn W.; Lau, Morten I., and Rutström, E. Elisabet, “Eliciting Risk and Time Preferences,” Econometrica, 76(3), 2008, 583-619.


Andersen, Steffen; Harrison, Glenn W.; Lau, Morten I., and Rutström, E. Elisabet, “Discounting

Behavior: A Reconsideration,” European Economic Review, 71(1), 2014, 15-33.


Benartzi, Shlomo, Previtero, Alessandro and Thaler, Richard H., “Annuitization Puzzles,” Journal of

Economic Perspectives, 25(4), Fall 2011, 143-164.


Brown, Jeffrey R., “Rational and Behavioral Perspective on the Role of Annuities in Retirement

Planning,” Working Paper 13537, NBER Working Paper Series, October 2007.


Clarke, Daniel J., “A Theory of Rational Demand for Index Insurance,” Discussion Paper No. 572,

Department of Economics, University of Oxford, October 2011.


Conlisk, John, “Three Variants on the Allais Example,” American Economic Review, 79(3), 1989, 392-407.


Deaton, Angus S., “Saving and Liquidity Constraints,” Econometrica, 59(5), September 1991, 1221-1248.


Di Mauro, Carmela and Maffioletti, Anna, “An Experimental Investigation of the Impact of Ambiguity on the Valuation of Self-Insurance and Self-Protection,” Journal of Risk and Uncertainty, 13, 1996, 53-71.


Dionne, Georges and Eeckhoudt, Louis, “Self-Insurance, Self-Protection and Increased Risk Aversion,” Economics Letters, 17, 1985, 39-42.


Ebert, Sebastian and Wisen, Daniel, “Testing for Prudence and Skewness Seeking,” Management Science, 57(7), July 2011, 1334-1349.


Ehrlich, Isaac and Becker, Gary S., “Market Insurance, Self-Insurance and Self-Protection,” Journal of

Political Economy, 80, 1972, 623-648.


Ellsberg, Daniel, “Risk, Ambiguity and the Savage Axioms,” Quarterly Journal of Economics, 75(4),

November 1961, 643-669.


Ergin, Haluk, and Gul, Faruk, “A Theory of Subjective Compound Lotteries,” Journal of Economic Theory, 144, 2009, 899-929.


Ganderton, Philip T.; Brookshire, David S.; McKee, Michael; Steward, Steve, and Thurston, Hale,

“Buying Insurance for Disaster-Type Risks: Experimental Evidence,” Journal of Risk and Uncertainty, 20(3), 2000, 271-289.


Ghirardato, Paolo, Maccheroni, Fabio and Marinacci, Massimo, “Differentiating Ambiguity and

Ambiguity Attitude,” Journal of Economic Theory, 118(2), October 2004, 133-173,


Harrison, Glenn W., Lau, Morten and Williams, Melonie B., “Estimating Individual Discount Rates in Denmark: A Field Experiment,” American Economic Review, 92(5), December 2002, 1606-1617.


Kahneman, Daniel and Tversky, Amos, “Prospect Theory: An Analysis of Decision under Risk,”

Econometrica, 47(2), May 1979, 263-292.


Kimball, Miles S., “Precautionary Saving in the Small and in the Large,” Econometrica, 58(1), January

1990, 53-73.


Klibanoff, Peter; Marinacci, Massimo, and Mukerji, Sujoy, “A Smooth Model of Decision Making

under Ambiguity,” Econometrica, 73(6), November 2005, 1849-1892.


Kunreuther, Howard and Pauly, Mark, “Neglecting Disaster: Why Don’t People Insure Against

Large Losses?” Journal of Risk and Uncertainnty, 28(1), 2004, 5-21.


Laury, Susan K.; McInnes, Melayne M., and Swarthout, J. Todd., “Insurance Decisions for Low-

Probability Losses,” Journal of Risk and Uncertainty, 39, 2009, 17-44.


Mayers, David, and Smith, Clifford W. Jr., “The Interdependence of Individual Portfolio Decisions

and the Demand for Insurance,” Journal of Political Economy, 91(2), April 1983, 304-311.


Nau, Robert, “Uncertainty Aversion with Second-Order Utilities and Probabilities,” Management Science, 52(1), January 2006, 136-145.


Quiggin, John, “A Theory of Anticipated Utility,” Journal of Economic Behavior and Organization, 3(4),

December 1982, 323-343.


Rabin, Mathew, “Risk Aversion and Expected-Utility Theory,” Econometrica 68(5), 2000, 1281-1292.


Raviv, Artur, “The Design of an Optimal Insurance Policy,” American Economic Review, 69(1), March

1979, 84-96.


Razin, Assaf, “Rational Insurance Purchasing,” Journal of Finance, 31(1), March 1976, 133-137.


Sarin, Rakesh K. and Weber, Martin, “Effects of Ambiguity in Market Experiments,” Management Science, 39(5), May 1993, 602-615.


Savage, Leonard J., “The Theory of Statistical Decision,” Journal of the American Statistical Association,

46(253), March 1951, 55-67.


Savage, Leonard J., “Elicitation of Personal Probabilities and Expectations,” Journal of the American

Statistical Association, 66, December 1971, 783-801.


Schmidt, Ulrich, “Insurance Demand and Prospect Theory,” Working Paper No. 1750, Kiel Institute for the World Economy, January 2012.


Segal, Uzi, “Probabilistic Insurance and Anticipated Utility,” Journal of Risk and Insurance, 55(2), June 1988, 287-297.


Segal, Uzi, “Two-Stage Lotteries without the Reduction Axiom,” Econometrica, 58(2), March 1990, 349-377.


Smith, Vernon L., “Optimal Insurance Coverage,” Journal of Political Economy 76(1), 1968, 68-77.


Tversky, Amos and Kahneman, Daniel, “Advances in Prospect Theory: Cumulative Representation of Uncertainty,” Journal of Risk and Uncertainty, 5, 1992, 297-323.


Wakker, Peter P.; Thaler, Richard H. and Tversky, Amos, “Probabilistic Insurance,” Journal of Risk and Uncertainty, 15, 1997, 7-28.


Wakker, Peter; Timmermans, Daniëlle and Machielse, Irma, “The Effects of Statistical Information on Risk and Ambiguity Attitudes, and on Rational Insurance Decisions,” Management Science, 53(11),

November 2007, 1770-1784.


Last updated on 24-06-2015