Risk and ambiguity aversion behavior in index-based insurance uptake decisions: Experimental evidence from Ethiopia

Temesgen Keno Belissa, Robert Lensink, Marcel Van Asseldonk*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

3 Citations (Scopus)

Abstract

Index-based insurance (IBI) is an innovative pro-poor climate risk management strategy that suffers from low uptake. Evidence on the role of behavioral impediments in adoption of IBI is scant. We conducted lab-in-the-field experiments with 1139 smallholders out of whom 596 have adopted IBI in Ethiopia to elicit their risk and ambiguity aversion behavior, and examine whether risk and/or ambiguity aversion can explain actual IBI uptake decisions. Our study suggests that an increase in risk-aversion increases uptake, but an increase in ambiguity-aversion lowers uptake of IBI. We also find evidence that an increase in risk aversion speeds-up the uptake of IBI, while an increase in ambiguity aversion delays the adoption of IBI.
Original languageEnglish
Pages (from-to)718-730
JournalJournal of Economic Behavior and Organization
Volume180
Issue numberDecember
Early online date3 Aug 2019
DOIs
Publication statusPublished - Dec 2020

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