Abstract
ABSTRACTThis paper investigates the optimality of making two insurance decisions independently in the expected utility framework, when the two risks under consideration are independent. It is shown that when the disutility function embodies constant risk aversion, independent decision‐making is identical to optimal joint decision‐making. When the disutility function has strictly decreasing risk aversion, joint decision‐making is always not less conservative than independent decision‐making, and the opposite holds when the disutility function has strictly increasing risk aversion. Stronger results are obtained for some particular disutility functions. Finally, some implications of these results for empirical research in utility and decision theory are considered.
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