Valuing insurance against small probability risks: A meta-analysis

Abstract: The demand for voluntary insurance against low-probability, high-impact risks is lower than expected. To assess the magnitude of the demand, we conduct a meta-analysis of contingent valuation studies using a dataset of experimentally elicited and survey-based estimates. We find that the average stated willingness to pay (WTP) for insurance is 87% of expected losses. We perform a meta-regression analysis to examine the heterogeneity in aggregate WTP across these studies. The meta-regression reveals that information about loss probability and probability levels positively influence relative willingness to pay, whereas respondents' average income and age have a negative effect. Moreover, we identify cultural sub-factors, such as power distance and uncertainty avoidance, that provided additional explanations for differences in WTP across international samples. Methodological factors related to the sampling and data collection process significantly influence the stated WTP. Our results, robust to model specification and publication bias, are relevant to current debates on stated preferences for low-probability risks management.