Insurance and Behavioral Economics: Improving Decisions in the Most Misunderstood Industry.

摘要

Individuals face a multitude of risks for which some form of insurance protection may be desirable. However, because the benefits of insurance can be contingent and distant, consumers may have a hard time deciding whether to purchase insurance, and if so, what insurance to purchase. To make these decisions, consumers would have to form beliefs regarding the distribution of the involved risks, and then evaluate the utility gains that can be achieved if risk-mitigating insurance is purchased. These utility gains would have to be compared with the required premium for the insurance product in order to determine whether purchasing such insurance is a good idea. On top of that, when facing a rich menu of possible insurance products, the consumer has to pick the best product from the menu. In every step in the above chain of the insurance purchase decision process, a typical consumer is apt to succumb to what may be considered as 'mistakes' and/or 'biases' relative to a perfectly rational expected utility maximizing consumer.