Abstract:
|
We use a field experiment to estimate effects of higher order risk attitudes and information friction on willingness to pay (WTP) for precautionary building standards with insurance discounts. To elicit risk attitudes and WTP, we employ 50-50 model-free risk apportionment lotteries and WTP experiments. Results reveal significant effects of second, third, and fourth order risk attitudes and information friction on homeowners’ WTP for precautions. We find that risk-lovers are also prudent and intemperate (mixed risk-loving), and exhibit dichotomous behaviors with mixed risk-averters. Overall, mixed risk-averters are willing to pay more than mixed risk-lovers for higher levels of precaution. Mixed risk-averter's WTP increases with decreases in information friction about the performance of precaution while that of mixed risk-lovers decreases. Risk-loving, prudent, and intemperate homeowners exhibit the highest WTP.
|