Insurance is an extraordinarily useful tool to manage risk. When it works as intended, it provides financial protection to individuals and a profitable business model for insurance firms and their investors. But it is broadly misunderstood by consumers, regulators, and insurance executives. This book looks at the behavior of individuals at risk, insurance industry decision makers, and policy makers at the local, state, and federal level involved in the selling, buying, and regulating of insurance. It compares their actions to those predicted by benchmark models of choice derived from classical economic theory. When actual choices stray from predictions, the behavior is considered to be anomalous. With considerable sums of money at stake, both in consumer premiums and insurance company payouts, it is important to understand the reasons for anomalous behavior. Howard Kunreuther, Mark Pauly, and Stacey McMorrow examine these anomalies through the lens of behavioral economics, which takes into account emotions, biases, and simplified decision rules. The authors then consider if and how such behavioral anomalies could be modified to improve individual and social welfare. This book is neither a defense of the insurance industry nor an attack on it. Neither is it a consumer guide to purchasing insurance, although the authors believe that consumers will benefit from the insights it contains. Rather, this book describes situations in which both public policy and the insurance industry s collective posture need to change. This may require incentives, rules, and institutions to help reduce both inefficient and anomalous behavior, thereby encouraging behavior that will improve individual and social welfare.

This book is the Proceedings of the International Conference on Trans portation, Storage, and Disposal of Hazardous Materials, which was held at the International Institute for Applied Systems Analysis (IIASA), 1-5 July 1985. The Conference brought together representatives of academia, business, and government from East and West to discuss the nature of current problems in the area of hazardous materials. An important objective of the Conference was to suggest steps that could be undertaken by industrial firms, the insurance industry, and govern ment agencies to improve the safety and efficiency with which hazar dous materials are produced and controlled in industrialized societies. Conference sponsors were IIASA, the Geneva Association, and the Center for Risk and Decision Processes of the University of Pennsyl vania. Additional financial support was received from the US Environ mental Protection Agency, the Monsanto Corporation, the Center for Organizational Innovation at the University of Pennsylvania, and the Canadian IIASA Committee. We are grateful to all of these institutions for their generous support of this Conference. Within IIASA, a long history of research in risk activities is evi dent. This owes much to the vision of IIASA's founding Director, Howard Raiffa, and program leaders who have promoted risk research at IIASA. The present Conference continued this tradition with the strong support of IIASA's current Director, Thomas H. Lee, and Deputy Director, Vitali Kaftanov."

The first summer study at IIASA brought together a cross-section of individ uals from different disciplines and nationalities. All the participants have had an interest in the role of risk analysis given the institutional arrangements which guide decision making for new technologies. This book contains edited versions of the papers presented at the meeting as well as a transcript of the discussions which took place. It provides the ingredients for a broader framework fcr studying the problems associated with technology and society where risk is representative of a much wider set of concerns than simply the probability and consequences of a hazardous accident. The Bundesministerium fuer Forschung und Technologie has an interest in promoting risk and safety research because of these new developments in society over the past ten years. In particular, there has been a diminished confidence in experts' statements on risk and a realization that many of the events which are being examined are not subject to detailed scientific analysis. There has also been an increasing recognition that distinctions must be made between analysis of the risk associated with an event and people's values and preferences. Another important development is the concern by the public that they participate more fully in the decision process on these issues. These concerns were articulated in both the papers and the open discussions at the summer study."

As America debates the merits of government-provided health insurance, it is important to note that the U.S. government is already the largest insurance provider in the world. For decades, it has used taxpayer funds to support the world's largest health care insurance programs (Medicare and Medicaid) as well as the biggest pension and disability insurance system (Social Security). The recent economic crisis has prompted the government to dramatically increase its insurance role by assuming large equity positions in private firms and bailing out troubled mortgages buyers and sellers. Do these public insurance programs improve social welfare? Or does government intervention risk moral hazard and result in inefficient programs that would be better handled by the private sector? In Public Insurance and Private Markets, leading economists critically examine the government's role in insuring against pension fund shortfalls, crop losses, property damage from floods and other natural catastrophes, bank failure, and terrorism. Jeffrey R. Brown and his coauthors argue that government intervention must always be economically justified; that risk adjusted premiums are essential; that the true taxpayer burden for public insurance programs must be recognized; and that private markets are capable of transferring risk without government intervention. Poorly designed government insurance programs result in misallocation of resources, excessive risk-taking, and potentially enormous burdens on current and future taxpayers. Public Insurance and Private Markets offers market-based guidelines for the proper scope of government intervention and the design of public insurance programs guidelines that will benefit the U.S. economy and protect the resources of future generations.

Insurance is an extraordinarily useful tool to manage risk. When it works as intended, it provides financial protection to individuals and a profitable business model for insurance firms and their investors. But it is broadly misunderstood by consumers, regulators, and insurance executives. This book looks at the behavior of individuals at risk, insurance industry decision makers, and policy makers at the local, state, and federal level involved in the selling, buying, and regulating of insurance. It compares their actions to those predicted by benchmark models of choice derived from classical economic theory. When actual choices stray from predictions, the behavior is considered to be anomalous. With considerable sums of money at stake, both in consumer premiums and insurance company payouts, it is important to understand the reasons for anomalous behavior. Howard Kunreuther, Mark Pauly, and Stacey McMorrow examine these anomalies through the lens of behavioral economics, which takes into account emotions, biases, and simplified decision rules. The authors then consider if and how such behavioral anomalies could be modified to improve individual and social welfare. This book is neither a defense of the insurance industry nor an attack on it. Neither is it a consumer guide to purchasing insurance, although the authors believe that consumers will benefit from the insights it contains. Rather, this book describes situations in which both public policy and the insurance industry s collective posture need to change. This may require incentives, rules, and institutions to help reduce both inefficient and anomalous behavior, thereby encouraging behavior that will improve individual and social welfare."