The affection effect in an incentive compatible insurance demand experiment

- We document the affection effect in insurance demand with salient payments.
- Demand for insurance is increased for an affectively loaded object.
- Prior results are validated in a more robust experimental setting.

Experimental studies have documented an affection effect in general decisions under risk as well as in insurance demand decisions. Most studies reporting this effect have not used salient and incentive compatible payments for the subjects. This might have skewed the results in favor of the hypotheses. In this note we revisit the affection effect in an insurance demand experiment with incentive compatible payments. We find the effect to be robust to the new experimental design further corroborating the established result of the affect heuristic in insurance decisions.