Abstract
Evidence shows that people are discouraged from buying fair insurance by the thought that if they do not suffer a loss, they will have wasted their money. We extend this theory to test if waste aversion could lead to a reduction in the amount of coverage sought. We deploy a multimethod design wherein we first run incentive-compatible experiments to establish a cause-and-effect relationship. We follow it up with a survey rolled out to actual buyers of insurance to generate external validity for our results. Our findings show that waste averters demand lesser insurance coverage than non-waste averters.
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