Behavioral Incentives in Insurance Policy Design
Compare and contrast the incentives for a policyholder to take preventative measures against a potential loss (e.g., theft of a valuable item) under two different scenarios: a policy that offers 100% coverage of the loss, and a policy that offers 75% coverage of the loss. In your answer, explain how the financial interests of the policyholder and the insurance company align or diverge in each scenario.
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