Improving Insurance Decisions in the Most Misunderstood Industry

Although intuitive perceptions of risk are relatively accurate over a broad range of situations, this is not the case for unfamiliar risks that involve small probabilities and high degrees of uncertainty (Cutler and Zeckhauser 2011; Kunreuther, Pauly and McMorrow 2013). In situations of extreme events, consumers are likely to deviate from expert assessments of probability and judge the likelihood of an event by its salience (Tversky and Kahneman 2011). There is thus a tendency to ignore rare risks until after a disaster occurs.