- Data collection collaborations
Deterrents to Insurance Purchases: Distrust and Zero Aversion.
Timothy Cheston, Alexandra De Filippo, Jiyoung Han, Claudia Newman-Martin & Richard Zeckhauser
- December 1, 2014
- 8:08 pm
SECTOR
PROJECT TYPE
DOI
Location
BEHAVIORAL THEME
OVERVIEW
Despite the benefit that insurance can provide to many in the developing world, rates of take-up remain low. Prohibitive pricing has often been cited as the reason for low rates of insurance. However, even where affordable insurance packages are offered, or indeed actuarially favorable due to subsidies from governments or aid agencies, take-up rates amongst poor populations remain low. Behavioral economics can help explain this underutilization. Biased assessment of probabilities (leading people to underweight moderate probabilities, thereby believing adverse events to be less likely than they truly are), status quo bias, and present bias have been shown – or are at least suspected – to play a role in reducing demand for insurance.
THEMATIC AREAS
Participants substantially distrusted institutions that might be involved in offering insurance arrangements, with large percentages preferring immediate payment as opposed to a significantly higher payment two weeks hence. Given that insurance requires an upfront premium in return for a contingent payment later, such preferences would strongly discourage insurance purchases. The overriding conclusion from this research is that poor individuals in developing nations make insurance decisions that depart substantially from what prescriptive decision theory would advise. Those designing insurance programs should take account of the behavioral propensities that may be driving these individuals’ choices.