This paper reviews the puzzles of insurance demand, and provides an overview of behavioural-based explanations on the concept of underinsurance. In particular, the study outlines the biases (among myopia, narrow framing and others) that help to explain the existence of those puzzles. The results indicate that biases do motivate the chances of underinsurance through sub-optimal probability weighting or wrong probability estimation of risks. We discuss that the literature has fallen short in providing possible solutions for the puzzles, with this study proposing financial literacy treatments, that aim at improving knowledge and use of finance, as a systematic solution.
- d80 - Information, Knowledge, and Uncertainty: General
- d91 - "Intertemporal Consumer Choice; Life Cycle Models and Saving"
- i22 - Educational Finance
- g22 - "Insurance; Insurance Companies"
- Insurance demand
- Behavioural finance
- Financial literacy