Flight Insurance and the Theory of Choice

R~ECENT commercial plane disasters ~ suggest that the prohibition of iX. air-travel insurance-a clear interference with freedom of consumer choice-might be a useful measure against murder and suicide. We shall argue on quite independent grounds, however, that the purchase of air-travel insurance, widespread even among economists, implies that the Neumann-Morgenstern axioms of rational choice have been violated. So sweeping a claim is, of course, subject to various qualifications, and these will be considered. Though we focus on air-accident insurance which has been made topical by recent plane disasters, this type of insurance is only one of a broad class covering losses from a variety of particular causes. The notion that a special cause of loss, rather than just the loss itself, warrants special insurance coverage seems to attract the public's fancy. Our argument about air-accident insurance extends to other such coverage as well-polio, school accidents, ski mishaps, and double-indemnity clauses for accidental death. And, finally, we shall note that our framework for analyzing air-accident insurance offers interesting general implications for economic behavior in the face of risk.