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We are pleased to host Prof. Dr. Annette Hofmann, Assistant Professor of Risk Management and Insurance at the Lindner College of Business, University of Cincinnati, for a virtual research seminar via Zoom on 21st October 2025, where she will present her recent paper on «Regretful Risks: A Partial Explanation of the Insurance Distortion Puzzle».
Abstract: Why is there a general reluctance to buy insurance for low-probability-high-consequence risks and a preference for high-probability-low-consequence risk coverages? Using a regret-theoretical expected utility framework, we aim to shed light on such behavior. Regret theory posits not only that decision-makers experience regret following an ex-post “wrong” decision, but also that their anticipation of potential regret is integrated into their decision-making processes. Under regret, some risks are more regretful than others because the impact of regret aversion mainly kicks in at the extremes and so individuals will adjust optimal coverage accordingly. The often discussed failure of catastrophe insurance markets may be a consequence of this phenomenon.