Prospect theory and insurance demand: Empirical evidence on the role of loss aversion

Hwang, In Do

doi:10.1016/j.socec.2021.101764

Cited by 15 publications

(5 citation statements)

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“…Further, a third of the population report a barrier in finding information when choosing a health insurance plan, aligning with previous evidence. 9 This result could point to the information overload that creates barriers in navigating health insurance 18 , 25 and suggests the need for targeted decision aids to support consumers in making informed choices effectively. A relevant example from the US is ‘Show Me My Health Plans’ SMMHP.…”

Section: Discussionmentioning

confidence: 99%

“…Financial risk aversion is measured using: ‘Would you consider yourself a person who is fully prepared to take risks, or do you try to avoid risk?’. 18 Time preference is measured using: ‘Would you consider yourself a person who is fully prepared to give up something today and benefit from it in the future?’. 19 Both items are rated on a scale from 1 to 5, with one indicating ‘not prepared at all’ and five indicating ‘fully prepared’.…”

Section: Methodsmentioning

confidence: 99%

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Assessing health insurance literacy in Switzerland: first results from a measurement tool

Bardy

2023

European Journal of Public Health

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Background Health insurance literacy (HIL) is crucial for individuals to make informed-decisions and navigate complex choice-based health insurance systems. However, there is a lack of evidence on HIL in countries outside the US, with Switzerland no exception. Methods Using the HILM-CH, a survey instrument developed to measure HIL in Switzerland, this study first describes the answers to the HILM-CH. Second, the study uses ordinary least squares and quantile regressions to investigate the associations between the HIL score and demographic, socioeconomic, health, and preference factors in the German, French, and Italian Swiss regions. Results A third of the population faces difficulties in finding health insurance information. Understanding it and managing the financial aspects of the Swiss health insurance system pose the biggest barriers to the population. The HIL score significantly and positively correlates with age and financial risk, while non-Swiss individuals have lower HIL scores. No association was found between HIL, gender, education and time preference. There is a small health gradient, with more doctor visits associated with higher HIL in the lowest quantiles of the HIL score. Similarly, wealthier individuals in the Swiss German part of Switzerland have a higher HIL when choosing their health insurance. Conclusion This study provides important insights into Swiss HIL and its associated factors. These findings contribute to the international literature on HIL and highlight the importance of understanding variations in HIL and various factors in choice-based health insurance systems.

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Section: Discussionmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

Assessing health insurance literacy in Switzerland: first results from a measurement tool

Bardy

2023

European Journal of Public Health

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“…People feel more pain from a loss than joy from a gain of similar value (Richter et al, 2019). Also, Hwang (2021) found loss-averse individuals to be less likely to purchase long-term care insurance since most consider insurance to be a risky investment and fear losing their premiums if nothing happens. It is evident from the above arguments that prospect biases and their underlying components, mental accounting, loss aversion, and regret aversion, can influence life insurance demand decisions.…”

Section: Literature Review 21 Theoretical Reviewmentioning

confidence: 99%

Effects of behavioral biases on life insurance demand decisions in Uganda

Ndawula,

Mori,

Nkote

2023

IJSE

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PurposeThis paper examines the relationship between behavioral biases, and demand decisions for life insurance products in Uganda.Design/methodology/approachData were collected from 351 life insurance policyholders in Uganda. The authors used a cross-sectional survey by applying a structured questionnaire. Descriptive analysis was conducted and hypothesized relationships between the constructs were evaluated through the use of structural equation modeling.FindingsResults indicate that, behavioral biases are significant predictors of life insurance demand among Ugandan policyholders. Also, the two behavioral bias variables (heuristic bias and prospect bias) are significant predictors of demand decisions for life insurance products.Practical implicationsThese results are helpful for both insurers and regulators. For insurers, it is now evident that demand decisions for life insurance products are not fully rational. It is imperative for insurers to simplify life insurance product information (heuristics), integrate product education and widen dissemination of product information (prospect bias) to allow policyholders to come up with optimal demand decisions. While for insurance policymakers, the study provides an understanding of behavioral biases. With such insights, policymakers can identify exploitative and deceptive information that target policyholders to better guide life insurance documentation and product designs.Originality/valueThis study is the first to offer insights into behavioral biases' influence on demand decisions for life insurance products in a developing country like Uganda. By integrating prospects and expected utility theory, this study examines rationality and irrationality in demand decisions for life insurance products.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-03-2023-0201

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“…Hwang In Do explore the prospect theory and insurance demand, it postulates that if a person considers their wealth level to be "the status quo wealth level when they do not engage in insurance contracts," a decline in insurance demand will be triggered because of loss aversion. [7]. By demonstrating that the passive connection isn't present in the purchase of auto insurance, one of the most commonly used insurance products and is frequently treated as a necessity.…”

Section: Literature Reviewmentioning

confidence: 99%

The Prospect Theory and The Stock Market

Wei¹

2023

HBEM

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This paper is aimed to investigate the important principle of behavioral economics , prospect theory and applies prospect theory to stock market. Based on the former studies, there are three features at the core of prospect theory, and they are in turn the reference point, a principle of diminishing sensitivity and loss aversion. Prospect theory focus on how people make decisions in an uncertain situation and it combines psychology to research economic man's choice behavior rather than research rational people’s economic behavior like expected utility theory. Therefore, the prospect theory has more value and more practical to apply in the stock market and be studied to predict investors behavior. In this essay, case analysis method and theoretical analysis method will be used to explore the prospect theory and stock market. It found that prospect theory can conduct investors gain more profit because of stock reverse transaction strategy. And loss aversion, the most important factor of reversal effect, point out that when face the uncertainty, people won’t keep completely rational as the utility theory said. What’s more, it suggests the exist of reverse effect in Chinese stock market. The research contributed to present understanding of the prospect theory in China's stock market, and further explores that the stock reversal strategy is more conducive to investors' profits in China's stock market. A large part of the reasons for this phenomenon can be explained by prospect theory, while expected utility theory cannot.

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Prospect theory and insurance demand: Empirical evidence on the role of loss aversion

Cited by 15 publications

References 56 publications

Assessing health insurance literacy in Switzerland: first results from a measurement tool

Assessing health insurance literacy in Switzerland: first results from a measurement tool

Effects of behavioral biases on life insurance demand decisions in Uganda

The Prospect Theory and The Stock Market

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