FRAMING
EFFECT, ENDOWMENT EFFECT AND INSURANCE DECISION
By:
Retno Tanding Suryandari
Decision making theory
portrays individual as a rational man who always
follows the consistent, maximize the payoff in certain
rational steps. But this rational model fails to
explain why during the decision process, behavior
shown by individual rarely in the consistent and
rational way.
This
research is aimed to justify if the framing
manipulation effects and endowment effect highly
correlated with the decision under uncertainty made by
individuals. Hypothetical insurance purchases are
created to test the effect in experiment setting.
Using 104 samples of car insurance policy owner and
uninsured car owner in Jakarta, the experiment results
exhibits distortion in evaluating the premium and
benefit of insurance decisions.
Key
words: Prospect Theory, reference point, framing
effect, endowment effect
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