Welfare consequences of the compound risks of index insurance
通过实验研究指数保险的基差风险如何影响购买决策，发现无法理解复合风险的人购买过多，造成福利损失，并提出了缓解损失的信息干预方法。
Abstract Index insurance is an attractive variant on the standard insurance contract that allows the determination of a loss event to be defined by one or more thresholds on an index that is positively correlated with actual losses. Index insurance also comes with a compound risk, basis risk. We examine how these compound risks for index insurance affect behavior towards the decision to purchase the product or not. Using incentivized experiments, we control the actuarial specifics of contracts offered, the information provided to decision makers, and our knowledge of the risk preferences of decision makers. We demonstrate that individuals that fail to process compound risks, end up purchasing the contract more than other individuals, as well as more than they should, generating significant welfare losses. We also develop a natural information treatment that mitigates these welfare losses.