The context effect in the choice of earthquake insurance contracts in Japan

In this paper, we investigate the context effect in the choice of public and private earthquake insurance contracts using data from a questionnaire survey completed by an identical set of approximately 2,000 households in 2008 and again in 2009. According to the 2008 survey, the public earthquake insurance (PEI) was not popular among those who felt that the premiums were too high. On the other hand, the 2009 survey demonstrates that the choice of earthquake insurance changed substantially when a hypothetical private earthquake insurance contract, much more expensive than the PEI, was added to a choice menu. In particular, those who had initially felt that PEI was too expensive tended to find it less expensive relative to private insurance, and worth purchasing. A crucial advantage of the above choice architecture is that including additional options helps private insurance companies to develop market activities.