Pain, Precautions and Present-biased Preferences: A Theory of Health Insurance

Konferenzbeitrag

We develop an insurance market model where consumers (i) exhibit present-biased preferences, and (ii) suffer from physical pain in case of (health-) damage. They can exert preventive effort to reduce the probability of damage. Sophisticated consumers correctly anticipate their effort and purchase full insurance. Naive consumers overestimate their future effort, purchase no insurance and end up with less effort than sophisticated ones. We allow consumers to differ in their wealth and risk preferences. Our model can explain why in some insurance markets there is a negative correlation between risk and insurance and a positive correlation between insurance and wealth.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Asymmetric Information and Risk ; No. C8-V1

Classification and Topics

• Classification: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Insurance; Insurance Companies; Actuarial Studies
• Subject: Insurance Markets, Moral Hazard, Hyperbolic Discounting, Sophistication

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Schumacher, Heiner ; Kesternich, Iris
• Event: Veröffentlichung
• (who): Verein für Socialpolitik
• (where): Frankfurt a. M.
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/37254
• Last update: 10.03.2025, 11:44 AM CET