Uncertainty and Demand for Insurance: A Theoretical Model of How Self-Control Manages the Optimal Decision-Making

Abstract

With the present work, we aim to mark a beginning line on the study of decision-making of potential consumers in the insurance sector, with the long-term purpose of defining the optimal cognitive processes to be undertaken when deciding whether to purchase insurance or not. Decision-making in conditions of uncertainty is influenced by the dual-self model doers/planner integrated with the hot–cold states and prospect utility function. Thus, we present a theoretical model of choice-making to evaluate the level of optimal self-control necessary to be exerted if the individual is either in the hot or in the cold state depending on the arousal. This theoretical choice-making model lays the ground for the decision journey by following the long-term utility and avoiding gross mistakes that could lead the consumer not to insure, when the odds suggest doing it, or vice versa, in situations when it would not be necessary.

Effects of behavioral biases on life insurance demand decisions in Uganda

“…These findings align seamlessly with Ishfaq et al (2020) that heuristic biases shape individual perceptions and lead individuals to follow irrational behavior in investment and purchase decision-making. Additionally, Adamo and Malizia (2021) notes that heuristics play an active role in influencing the choice of a desirable insurance policy without too much information analysis.…”