Do Disaster Experience and Knowledge Affect Insurance Take-up Decisions?
This study examines the effect of experience and knowledge on weather insurance adoption. First, we conduct insurance games with farmers, and find that the treatment improves real insurance take-up by 46%. The effect is not driven by changes in risk attitudes and perceived probability of disasters, or by learning of insurance benefits, but is driven by the experience acquired in the game. Second, we find that providing information about the payout probability has a strong positive effect on insurance take-up. Finally, when subjects receive both treatments, the probability information has a greater impact on take-up than does the disaster experience.
We are grateful to Liang Bai, Michael Carter, Stefano DellaVigna, Frederico Finan, Benjamin Handel, Jonas Hjort, Shachar Kariv, Botond Koszegi, David Levine, Ulrike Malmendier, Edward Miguel, Stefan Nagel, Matthew Rabin, Gautam Rao, Emmanuel Saez, and Dean Yang for helpful comments and suggestions. We thank the People's Insurance Company of China for their close collaboration at all stages of the project. The study was funded by Xlab at UC Berkeley and the 3ie. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Jing Cai & Changcheng Song, 2016. "Do disaster experience and knowledge affect insurance take-up decisions?," Journal of Development Economics, .