Why buy insurance? Demand for insurance driven by the fear of the unknown Hedge against risk--the possibility of bad outcomes Purchasing insurance means forfeiting income in good times to get money in bad times If bad times avoided,then money lost Ex:The individual who buys health insurance but never visits the hospital might have been better off spending that income elsewhere. Bhattacharya,Hyde and Tu-HealthEconomics Bhattacharya, Hyde and Tu – Health Economics Why buy insurance?  Demand for insurance driven by the fear of the unknown  Hedge against risk -- the possibility of bad outcomes  Purchasing insurance means forfeiting income in good times to get money in bad times  If bad times avoided, then money lost  Ex: The individual who buys health insurance but never visits the hospital might have been better off spending that income elsewhere