Inferring Risk Perceptions and Preferences using Choice from Insurance Menus: Theory and Evidence

Ericson, Keith M. Marzilli; Kircher, Philipp; Spinnewijn, Johannes; Starc, Amanda

doi:10.3386/w21797

Cited by 7 publications

(7 citation statements)

References 58 publications

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“…For our example, we assume that people vary in their level of risk aversion, which we assume is uniformly distributed between 0 (risk neutral) and r = 0.001. This level of variation allows us to model a population with substantial variation in risk aversion and is broadly in line with the range of risk aversion in the health insurance literature (for example, see the distributions compared in Ericson, Kircher, Spinnewijn, and Starc 2015).…”

Section: Building Block 4: Risk Aversion and The Value Of Insurancementioning

confidence: 75%

“…On the other hand, such choices create potential for problems with consumer confusion and adverse selection. However, economists know less about and have less of a well-established framework for modeling how people value access to different networks of providers (for discussion, see Ericson and Starc 2015).…”

Section: Other Dimensions Of Choice: Value and Pitfallsmentioning

confidence: 99%

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The Questionable Value of Having a Choice of Levels of Health Insurance Coverage

Ericson

Sydnor

2017

Journal of Economic Perspectives

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In most health insurance markets in the United States, consumers have substantial choice about their health insurance plan. However additional choice is not an unmixed blessing as it creates challenges related to both consumer confusion and adverse selection. There is mounting evidence that many people have difficulty understanding the value of insurance coverage, like evaluating the relative benefits of lower premiums versus lower deductibles. Also, in most US health insurance markets, people cannot be charged different prices for insurance based on their individual level of health risk. This creates the potential for well-known problems of adverse selection because people will often base the level of health insurance coverage they choose partly on their health status. In this essay, we examine how the forces of consumer confusion and adverse selection interact with each other and with market institutions to affect how valuable it is to have multiple levels of health insurance coverage available in the market.

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Section: Building Block 4: Risk Aversion and The Value Of Insurancementioning

confidence: 75%

Section: Other Dimensions Of Choice: Value and Pitfallsmentioning

confidence: 99%

The Questionable Value of Having a Choice of Levels of Health Insurance Coverage

Ericson

Sydnor

2017

Journal of Economic Perspectives

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“…36 See Ericson et al [2015] for an analysis of differential responses to changes in coverage and changes in prices depending on the heterogeneity in risks and preferences. In advantageously selected markets, the increase in minimum coverage could as well attract types with lower unemployment risk (but higher risk aversion).…”

Section: Minimum Mandatementioning

confidence: 99%

Risk-Based Selection in Unemployment Insurance: Evidence and Implications

Landais

Nekoei

Nilsson

et al. 2021

American Economic Review

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This paper studies whether adverse selection can rationalize a universal mandate for unemployment insurance (UI). Building on a unique feature of the unemployment policy in Sweden, where workers can opt for supplemental UI coverage above a minimum mandate, we provide the first direct evidence for adverse selection in UI and derive its implications for UI design. We find that the unemployment risk is more than twice as high for workers who buy supplemental coverage. Exploiting variation in risk and prices, we show how 25–30 percent of this correlation is driven by risk-based selection, with the remainder driven by moral hazard. Due to the moral hazard and despite the adverse selection we find that mandating the supplemental coverage to individuals with low willingness-to-pay would be suboptimal. We show under which conditions a design leaving choice to workers would dominate a UI system with a single mandate. In this design, using a subsidy for supplemental coverage is optimal and complementary to the use of a minimum mandate. (JEL D82, G22, J65)

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“…An interesting departure from this literature appears in Ericson et al (2018), who build upon and expand the arguments here to provide results on nonparametric identification of unobserved heterogeneity in both risk aversion and risk, where "risk" can be interpreted as subjective beliefs. Their analysis can be related to ours observing that π , as described in this section, can be interpreted as risk and can be learned without connecting it with claim probabilities μ ; observation of μ and variation in μ are only needed to identify π as a function of μ (see footnote 23).…”

Section: And Individuals Withmentioning

confidence: 99%

Estimating Risk Preferences in the Field

Barseghyan

Molinari

O’Donoghue

et al. 2018

Journal of Economic Literature

123

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We survey the literature on estimating risk preferences using field data. We concentrate our attention on studies in which risk preferences are the focal object and estimating their structure is the core enterprise. We review a number of models of risk preferences—including both expected utility (EU) theory and non-EU models—that have been estimated using field data, and we highlight issues related to identification and estimation of such models using field data. We then survey the literature, giving separate treatment to research that uses individual-level data (e.g., property-insurance data) and research that uses aggregate data (e.g., betting-market data). We conclude by discussing directions for future research. ( JEL C51, D11, D81, D82, D83, G22, I13)

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Inferring Risk Perceptions and Preferences using Choice from Insurance Menus: Theory and Evidence

Abstract: NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Cited by 7 publications

References 58 publications

The Questionable Value of Having a Choice of Levels of Health Insurance Coverage

The Questionable Value of Having a Choice of Levels of Health Insurance Coverage

Risk-Based Selection in Unemployment Insurance: Evidence and Implications

Estimating Risk Preferences in the Field

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