AN EXPERIMENTAL INVESTIGATION OF THE IMPACT OF AMBIGUITY ON THE VALUATION OF SELF-INSURANCE AND SELF-PROTECTION

We build two experimental markets to examine individual valuations of risk reductions with two risk-management tools: self-insurance and sel f-protection. We find no positive evidence that the risk-reducing mech anisms constitute a ''frame.'' Ambiguity in the probability on average affects valuation only weakly, and changes in the representation of a mbiguity do not alter valuation. Finally, unlike the results obtained by Hogarth and Kunreuther for the case of market insurance, our findin gs do not provide a strong support for the ''Anchoring and Adjustment' ' ambiguity model.