Why your clients will buy insurance only after a disaster
By Jason Contant
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Besides amnesia, five other biases play a role in being underprepared:
- Myopia: The focus is on short-term horizons, such as what is going to happen tomorrow, or even next year. “The real challenge with focusing on short-term horizons is that so much of what you want to do in preparing for disasters is to invest in adaptation,” Kunreuther said. “How do you adapt to climate change? How do you adapt to the flood problem? How do you reduce [and] mitigate the losses? These costs can be high. So if you’re only thinking about the next year or two or three, you’re going to say, ‘I don’t want to put my money into this, I’m not going to get a payback.’”
- Optimism: This involves underestimating the likelihood of extreme events. “They’re below our threshold level of concern, we’re not going to pay attention to them,” Kunreuther said. “Even if they’re low, you may want to put some energy into thinking about them, as Hurricane Harvey illustrated.”
- Inertia: Describes not wanting to change from the status quo, because there is a lot of uncertainty in change. “There is loss aversion, so if you lose 10 dollars, you’re feeling a lot worse about losing the 10 dollars than gaining 10 dollars.”
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