Learning about an infrequent event: Evidence from flood insurance take-up in the United States
Gallagher examines how people update their expectations of an uncertain and infrequently observed event, using a nationwide panel of large regional floods and flood insurance policies in the United States. Insurance take-up spikes the year after a flood and then declines steadily to baseline. Residents of non-flooded communities in the same television media market increase take-up, but at a fraction of the rate of flooded communities. Take-up is most consistent with a Bayesian learning model that allows for forgetting or incomplete information about past floods.
Gallagher examines how people update their expectations of an uncertain and infrequently observed event, using a nationwide panel of large regional floods and flood insurance policies in the United States. Insurance take-up spikes the year after a flood and then declines steadily to baseline. Residents of non-flooded communities in the same television media market increase take-up, but at a fraction of the rate of flooded communities. Take-up is most consistent with a Bayesian learning model that allows for forgetting or incomplete information about past floods.
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Gallagher, J. (2014). Learning about an infrequent event: Evidence from flood insurance take-up in the United States. American Economic Journal: Applied Economics, 6(3), 206-233. doi:10.1257/app.6.3.206