The American Risk and Insurance Association presents the Robert I. Mehr Award each year for the paper published ten years ago in The Journal of Risk and Insurance that has best stood the test of time. The evaluation of the articles is made by the editorial board of JRI.
The recipients of the 2014 Mehr Award are Michael Braun and Alexander Muermann for “The Impact of Regret on the Demand for Insurance.”
We examine optimal insurance purchase decisions of individuals that exhibit behavior consistent with Regret Theory. Our model incorporates a utility function that assigns a disutility to outcomes that are ex post suboptimal, and predicts that individuals with regret-theoretical preferences adjust away from the extremes of full insurance and no insurance coverage. This prediction holds for both coinsurance and deductible contracts, and can explain the frequently observed preferences for low deductibles in markets for personal insurance.