From Flocks to Fortunes: Experience, Belief Updating, and Insurance Adoption
SeriesResearch Master Defense
Speaker(s)Vinh Phan , Vinh Phan
LocationTinbergen Institute Amsterdam, room 1.02 (hybrid)
Date and time
August 22, 2023
14:30 - 16:00
Adoption of index insurance tends to increase immediately after claim payment is made or after an adverse event and decrease during periods where there is loss or payment event. Such a pattern of insurance adoption is often interpreted to reflect an underlying belief updating process that is not fully Bayesian. In this paper, I examine whether it is indeed beliefs that explain this sensitivity of insurance adoption to recent experiences. Using a novel dataset of herders in Ethiopia that contained incentivized beliefs across four rounds of herding seasons, I find that beliefs cannot explain the effect of claim payment or loss experience on insurance adoption, even though there is suggestive evidence that beliefs are not updated in a fully Bayesian manner. The findings suggest that other behavioral factors may better explain the relationship between experience and insurance take-up.