ABSTRACT
To illuminate the subject of risk taking and risk aversion, we studied the economic and demographic characteristics of homeowners who purchased earthquake insurance and determined whether these characteristics differed from those of people who decided not to purchase insurance. We anticipated that the findings of our study would have policy implications. For example, if homeowners with relatively small proportions of their own capital tied up in equity in their residences do not have earthquake insurance, then they would be less likely to suffer major losses after an earthquake. On the other hand, serious disruptions of individual or household wealth would occur if the uninsured had large proportions of their capital invested as equity in their housing. Households vulnerable to major losses also include those of the unemployed or low paid who own a house with little or no mortgage debt. This population segment includes low-income widows or divorcees whose primary source of wealth is their home equity or elderly persons who have paid off the mortgage on their home and thus have their savings tied up in their home equity. For these groups, the loss of their home would be a devastating blow, one from which recovery would be extremely difficult. To identify any relationship between this vulnerability to major loss of low income households with high equities, we explored the relationship between equity position, income, age, and the purchase of earthquake insurance.
