Sharing ambiguous risks
Journal of Mathematical Economics
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Reason for embargo
We analyse risk-sharing when individuals perceive ambiguity about future events. The main departure from previous work is that different individuals perceive ambiguity differently. We show that individuals fail to share risks for extreme events. This may provide an explanation why we do not observe individuals buying insurance for certain events like hurricanes or earthquakes and why many contracts contain an "act of God" clause, which allows non-performance if an unforeseen event occurs.
NOTICE: this is the author’s version of a work that was accepted for publication in the Journal of Mathematical Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in the Journal of Mathematical Economics, Vol. 56, pp. 1-8, January 2015. doi:10.1016/j.jmateco.2014.11.001
Vol. 56, pp. 1 - 8