INSURANCE DEMAND WITHOUT THE EXPECTED-UTILITY PARADIGM

This article focuses on two cornerstone results in insurance economics : Mossin's Theorem on the optimality of full versus partial coverage, and Arrow's Theorem on the optimality of straight deductible policies. Both of these results are examined in a model assuming only risk aver sion, and not necessarily expected-utility maximization. The results a lso are examined with the inclusion of a noninsurable background risk. Arrow's result is robust enough to hold in all of these situations. M ossin's result is shown to hold with a slight weakening, to account fo r possible ''nonsmoothness'' of preferences in non-expected-utility mo dels.