Learning about an Infrequent Event: Evidence from Flood Insurance Take-Up in the United States
AbstractI examine the learning process that economic agents use to update their expectation of an uncertain and infrequently observed event. I use a new nation-wide panel dataset of large regional floods and flood insurance policies to show that insurance take-up spikes the year after a flood and then steadily declines to baseline. Residents in nonflooded communities in the same television media market increase take-up at one-third the rate of flooded communities. I find that insurance take-up is most consistent with a Bayesian learning model that allows for forgetting or incomplete information about past floods.
CitationGallagher, Justin. 2014. "Learning about an Infrequent Event: Evidence from Flood Insurance Take-Up in the United States." American Economic Journal: Applied Economics, 6 (3): 206-33. DOI: 10.1257/app.6.3.206
- D12 Consumer Economics: Empirical Analysis
- D83 Search; Learning; Information and Knowledge; Communication; Belief
- D84 Expectations; Speculations
- G22 Insurance; Insurance Companies; Actuarial Studies
- Q54 Climate; Natural Disasters; Global Warming