Paper: Discontinuity of Preferences and Insurance Demand: Results From a Framed Field Experiment in Burkina Faso

This paper presents a novel way to understand the low uptake of index insurances using the concept of discontinuity of preferences. We run a framed field experiment with cotton farmers in southwest Burkina Faso to test whether farmers respond differently to two actuarially identical contracts, but framed in a way where only one allows for uncertain premium. We test whether the attitude to respond differently to these contracts can be explained by discontinuous preferences.

In this sample, 29 percent of the surveyed farmers reveal themselves both to have discontinuous preferences and to be willing to pay more for an insurance contract framed with uncertain premium. Our results highlight the importance of designing insurance contracts allowing for discontinuous preferences.