Graduation Year

Spring 2013

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Sean Flynn

Reader 2

Latika Chaudhary

Rights Information

© 2013 Tiffany Kindred

Abstract

This thesis analyzes the interplay between natural disasters, human behavior, and insurance markets. Prospect theory can help us understand how fundamental behavioral biases in human nature affect insurance purchases and can begin to explain previously exhibited irrational behavior in regards to earthquake insurance. The Great East Japan Earthquake presents a useful case study to examine the performance of Japanese residential earthquake insurance in light of a devastating major catastrophe. Analysis suggests that prospect theory can explain low earthquake insurance penetration rates, and that insurance policies can be improved by taking into account behavioral biases. Examination of the disaster insurance market highlights the debate of government intervention, and brings into question long-term sustainability of the private insurance market.

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This thesis is restricted to the Claremont Colleges current faculty, students, and staff.

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