The Wealth Effects on Demand for Insurance under Ambiguity Aversion
Bao-An Huang *
Linyi University, Linyi 276000, Shandong, China.
Xiao-Hong Wang
Mengyin County Bureau of Agriculture and Rural Affairs, 276000, Shandong, China.
*Author to whom correspondence should be addressed.
Abstract
Under which condition does the optimal insurance demand decrease in wealth? In the expected utility model a decreasing concavity condition is necessary and sufficient for this result. However in general, the result does not hold under ambiguity aversion. By introducing several types of controlling relation about random loss variables, we constrained the structure of the ambiguity and obtained several unambiguous results. The results show that under these constraints the demand for insurance against ambiguous losses also decreases in wealth.
Keywords: Decreasing aversion, smooth ambiguity aversion, decreasing concavity, optimal insurance demand