Abstract
Purpose – The subject of making choices under risk has been studied based on the assumption that decision makers are fully informed. However, in real life situations individuals frequently need to make choices without the benefit of essential information. This study analyzes decision making in the absence of information about the probabilities of losses and potential impacts, which constitutes a context of ignorance, or alternatively making choices under risk or uncertainty. Theoretical framework – This study is supported by theoretical aspects related to decision making under ignorance, specifically within the context of buying insurance. Design/methodology/approach – We used One Way ANOVA and regressions based on the data collected from two experiments regarding the willingness to acquire extended warranties for electronic equipment, which involved the participation of over 130 volunteers. Findings – Our findings suggest that the absence of economic information – deficient disclosure – makes the cost of insurance relevant to the consumer and is negatively associated with the propensity to acquire it. In addition, the cost of repairs and the probability of equipment breaking increase the propensity to acquire an extended warranty. Practical & social implications of research – By making information relevant to consumption decisions and accessible in a transparent manner, agents can induce a surge in consumption, making the market more efficient and society more resilient in the face of risks. Originality/value – This study may be the first to provide empirical evidence regarding the purchase of insurance within a context of ignorance in emerging markets. Keywords – choices under ignorance, insurance, risk aversion, uncertainty, resilience.
Highlights
MotivationThe standard choice paradigm is supported by the assumption that individuals form their preferences between alternatives characterized by probabilities and results, as pointed out by Kleindorfer et al (1993)
Our findings suggest that the absence of economic information – deficient disclosure – makes the cost of insurance relevant to the consumer and is negatively associated with the propensity to acquire it
We examine whether the absence of relevant information in decision making regarding a given type of insurance influences the judgement of individual consumers
Summary
The standard choice paradigm is supported by the assumption that individuals form their preferences between alternatives characterized by probabilities and results, as pointed out by Kleindorfer et al (1993). Considering the observations in aggregate, the availability of information about the probability of a product breaking, as well as the cost of repairing it, does not seem to significantly influence the willingness of individuals to acquire a warranty for electronic equipment. This suggests that typically people do not alter their willingness to acquire electronic equipment warranties in a significant manner, no matter whether they are making their decisions under ignorance or not. It contributes to the work of regulators, because it provides evidence of the potential impacts of programs that promote product disclosure, whether they are durable goods or financial services offered by insurance companies
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