Limited Information and its Impact on a Policyholder's Optimal Choice on Deductibles

When determining the optimal deductible level for an insurance policy, a policyholder faces two sources of uncertainty. First, uncertainty arises from the randomness of future losses. The opacity of the functional forms of the policyholder's loss distribution as well as her utility function, on the other hand, causes a second kind of uncertainty. While the academic literature focuses on the former, we additionally incorporate limited information on these functional forms. That is, we draw on an expected utility framework and analyze the relationship between optimal deductible levels under limited
and full information. Further, we derive heuristics under limited information in order to approximate the optimal deductible level under full information.