Insurance as commitment?

Abstract Most insurance decisions combine risk management and an intertemporal dimension. Yet while non‐canonical behavioral models have been applied extensively to the risk management aspect, they are mostly missing from the intertemporal component. We expand insurance demand theory by showing that individuals who perceive themselves as present‐biased value insurance as a commitment device to counteract time‐inconsistent behavior. We test our theoretical prediction with an incentive‐compatible experiment. Among all participants, we find a near‐zero average treatment effect on the willingness to pay for the commitment aspect of insurance. When considering only the present‐biased subsample, we find tentative evidence for the theoretical mechanism, but it is not robust across between‐ and within‐subject analyses. Our findings suggest that the commitment function of insurance contracts is not a major driver of insurance demand in our experimental setting, directing future research toward other settings in which it might be more important or toward alternative behavioral mechanisms.