Question

Contrary to economic theory, individuals are more likely to insurance high probability, low cost events, and less likely to insurance low probability, high cost events. What might explain this behavior?

Answer 1

High probability , low cost events are those there are where there are more chances of occuring of those events where the cost of that event is low

Example : Road Accidents

Low probability ,high cost events are those there are where less chances of occuring of those events where the cost of that event is high

Example: Getting killed in a earth quake or any volcanic eruption

In these two cases we can see that in the first case people are sure that the probability of accidents are high so that if it happens we can get the money in the form of insurance which is security. So they pay this insurance as road accidents occurance is very high

In second case the accidents due to natural disasters occurence is very low where it may or may not happen to you thus the process of paying that insurance is not neccesary so people will avoid and not likely to insure in these type of insurances.