nep-ias New Economics Papers
on Insurance Economics
Issue of 2015‒03‒13
two papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. How Do Consumers Choose Health Insurance? – An Experiment on Heterogeneity in Attribute Tastes and Risk Preferences By Nadja Kairies-Schwarz; Johanna Kokot; Markus Vomhof; Jens Wessling
  2. What kind of Welfare State do you prefer? An experiment on framing the social insurance scheme By Francesco Farina; Stefania Ottone; Ferrucio Ponzano

  1. By: Nadja Kairies-Schwarz; Johanna Kokot; Markus Vomhof; Jens Wessling
    Abstract: Recent health policy reforms try to increase consumer choice. We use a laboratory experiment to analyze consumers’ tastes in typical contract attributes of health insurances and to investigate their relationship with individual risk preferences. First, subjects make consecutive insurance choices varying in the number and types of contracts offered. Then, we elicit individual risk preferences according to Cumulative Prospect Theory. Applying a latent class model to the choice data, reveals five classes of consumers with considerable heterogeneity in tastes for contract attributes. From this, we infer distinct behavioral strategies for each class. The majority of subjects use minimax strategies focusing on contract attributes rather than evaluating probabilities in order to maximize expected payoffs. Moreover, we show that using these strategies helps consumers to choose contracts, which are in line with their individual risk preferences. Our results reveal valuable insights for policy makers of how to achieve efficient consumer choice.
    Keywords: Health insurance; risk preferences; heterogeneity; heuristics; laboratory experiment; cumulative prospect theory
    JEL: C91 I13 D81
    Date: 2014–12
  2. By: Francesco Farina; Stefania Ottone; Ferrucio Ponzano
    Abstract: A real-effort experiment is conducted in order to detect preferences for one of three different models of Welfare State characterized by different schemes of tax-and-transfers. Experimental subjects have to choose (both under and without veil of ignorance concerning their position in the society created in the lab) among: a) a baseline proportional scheme, where the State is neutral with respect to risk heterogeneity; b) an actuarially-fair scheme where low-ability and low-earnings subjects bear individual full responsibility for risk exposure; c) a progressive scheme where mutual risk insurance spreads risk across all subjects, so that low-ability and low-earnings individuals are compensated. The aim is to investigate how subjects posit with respect to the task performed by the Welfare State, which is the interaction between inequality of opportunity and income inequality facing low-ability and low-earnings individuals due to their relatively higher risk exposure. Our most relevant finding is that preference is not much motivated by a justice principle, but mainly by the expectation on one’s own position in the society.
    Keywords: Welfare State, insurance, redistribution, proportional system, actuarially-fair system, progressive system
    JEL: C9 D31 D63 H26
    Date: 2015–03

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