Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
IDEAS home Printed from https://ideas.repec.org/a/bla/jrinsu/v89y2022i2p311-337.html
   My bibliography  Save this article

Framing and insurance choices

Author

Listed:
  • Anastasia Burkovskaya
  • Adam Teperski
  • Kadir Atalay

Abstract

The presentation of objective information should not affect a rational decision‐maker; however, in practice, it often does. This paper studies the effect of the framing of contingencies on insurance choices. In several experiments, we presented participants with differently framed insurance tasks, where they had to choose deductibles against two different types of losses. The treatment group received a broad description of the risky situation and was asked to decide on the deductibles jointly, whereas the control group received a narrow description of the same task and was asked to decide on the deductibles separately. We discovered that the distribution of the insurance premium paid was identical in all groups, but the actual choices of the insurance plans were significantly diverse: On average, the treatment group preferred more similar deductibles than did the control group. These results indicate the importance of framing in insurance decision‐making.

Suggested Citation

  • Anastasia Burkovskaya & Adam Teperski & Kadir Atalay, 2022. "Framing and insurance choices," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(2), pages 311-337, June.
    • Handle: RePEc:bla:jrinsu:v:89:y:2022:i:2:p:311-337
    DOI: 10.1111/jori.12362
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jori.12362
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jori.12362?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. John Horton & David Rand & Richard Zeckhauser, 2011. "The online laboratory: conducting experiments in a real labor market," Experimental Economics, Springer;Economic Science Association, vol. 14(3), pages 399-425, September.
    2. Liran Einav & Amy Finkelstein & Iuliana Pascu & Mark R. Cullen, 2012. "How General Are Risk Preferences? Choices under Uncertainty in Different Domains," American Economic Review, American Economic Association, vol. 102(6), pages 2606-2638, October.
    3. Jeffrey R. Brown & Jeffrey R. Kling & Sendhil Mullainathan & Marian V. Wrobel, 2008. "Why Don’t People Insure Late-Life Consumption? A Framing Explanation of the Under-Annuitization Puzzle," American Economic Review, American Economic Association, vol. 98(2), pages 304-309, May.
    4. Daniel Kahneman, 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics," American Economic Review, American Economic Association, vol. 93(5), pages 1449-1475, December.
    5. Christopher K. Hsee & Jiao Zhang & Liangyan Wang & Shirley Zhang, 2013. "Magnitude, Time, and Risk Differ Similarly between Joint and Single Evaluations," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 40(1), pages 172-184.
    6. Antonio A. Arechar & Simon Gächter & Lucas Molleman, 2018. "Conducting interactive experiments online," Experimental Economics, Springer;Economic Science Association, vol. 21(1), pages 99-131, March.
    7. Stefano DellaVigna & Devin Pope, 2018. "Predicting Experimental Results: Who Knows What?," Journal of Political Economy, University of Chicago Press, vol. 126(6), pages 2410-2456.
    8. Wolf, Charles & Pohlman, Larry, 1983. "The Recovery of Risk Preferences from Actual Choices," Econometrica, Econometric Society, vol. 51(3), pages 843-850, May.
    9. Richard H. Thaler, 2008. "Mental Accounting and Consumer Choice," Marketing Science, INFORMS, vol. 27(1), pages 15-25, 01-02.
    10. Beetsma, Roel M W J & Schotman, Peter C, 2001. "Measuring Risk Attitudes in a Natural Experiment: Data from the Television Game Show Lingo," Economic Journal, Royal Economic Society, vol. 111(474), pages 821-848, October.
    11. Michele Piccione & Ran Spiegler, 2012. "Price Competition Under Limited Comparability," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 97-135.
    12. Ilyana Kuziemko & Michael I. Norton & Emmanuel Saez & Stefanie Stantcheva, 2015. "How Elastic Are Preferences for Redistribution? Evidence from Randomized Survey Experiments," American Economic Review, American Economic Association, vol. 105(4), pages 1478-1508, April.
    13. Alok Kumar & Sonya Seongyeon Lim, 2008. "How Do Decision Frames Influence the Stock Investment Choices of Individual Investors?," Management Science, INFORMS, vol. 54(6), pages 1052-1064, June.
    14. Daniel Kahneman & Dan Lovallo, 1993. "Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking," Management Science, INFORMS, vol. 39(1), pages 17-31, January.
    15. Carin Huber & Nadine Gatzert & Hato Schmeiser, 2015. "How Does Price Presentation Influence Consumer Choice? The Case of Life Insurance Products," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 82(2), pages 401-432, June.
    16. Liran Einav & Amy Finkelstein & Mark R. Cullen, 2010. "Estimating Welfare in Insurance Markets Using Variation in Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(3), pages 877-921.
    17. Zheng, Jiakun, 2020. "Optimal insurance design under narrow framing," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 596-607.
    18. Janiszewski, Chris & Cunha, Marcus, Jr, 2004. "The Influence of Price Discount Framing on the Evaluation of a Product Bundle," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 30(4), pages 534-546, March.
    19. Dereje W. Gudicha & Fetene B. Tekle & Jeroen K. Vermunt, 2016. "Power and Sample Size Computation for Wald Tests in Latent Class Models," Journal of Classification, Springer;The Classification Society, vol. 33(1), pages 30-51, April.
    20. John C. Hershey & Howard C. Kunreuther & Paul J. H. Schoemaker, 1982. "Sources of Bias in Assessment Procedures for Utility Functions," Management Science, INFORMS, vol. 28(8), pages 936-954, August.
    21. Jeffrey R. Brown & Arie Kapteyn & Olivia S. Mitchell, 2016. "Framing And Claiming: How Information-Framing Affects Expected Social Security Claiming Behavior," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(1), pages 139-162, January.
    22. Justin Sydnor, 2010. "(Over)insuring Modest Risks," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 177-199, October.
    23. Metrick, Andrew, 1995. "A Natural Experiment in "Jeopardy!"," American Economic Review, American Economic Association, vol. 85(1), pages 240-253, March.
    24. Benjamin L. Collier & Marc A. Ragin, 2020. "The Influence of Sellers on Contract Choice: Evidence from Flood Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 87(2), pages 523-557, June.
    25. Benjamin R. Handel & Jonathan T. Kolstad, 2015. "Health Insurance for "Humans": Information Frictions, Plan Choice, and Consumer Welfare," American Economic Review, American Economic Association, vol. 105(8), pages 2449-2500, August.
    26. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    27. Ran Spiegler, 2015. "On the Equilibrium Effects of Nudging," The Journal of Legal Studies, University of Chicago Press, vol. 44(2), pages 389-416.
    28. Jose Miguel Abito & Yuval Salant, 2019. "The Effect of Product Misperception on Economic Outcomes: Evidence from the Extended Warranty Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(6), pages 2285-2318.
    29. Ioana Chioveanu & Jidong Zhou, 2013. "Price Competition with Consumer Confusion," Management Science, INFORMS, vol. 59(11), pages 2450-2469, November.
    30. James Vercammen & David J. Pannell, 2000. "The Economics of Crop Hail Insurance," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 48(1), pages 87-98, March.
    31. Johnson, Eric J & Hershey, John & Meszaros, Jacqueline & Kunreuther, Howard, 1993. "Framing, Probability Distortions, and Insurance Decisions," Journal of Risk and Uncertainty, Springer, vol. 7(1), pages 35-51, August.
    32. Matthew Rabin & Georg Weizsacker, 2009. "Narrow Bracketing and Dominated Choices," American Economic Review, American Economic Association, vol. 99(4), pages 1508-1543, September.
    33. Levon Barseghyan & Jeffrey Prince & Joshua C. Teitelbaum, 2011. "Are Risk Preferences Stable across Contexts? Evidence from Insurance Data," American Economic Review, American Economic Association, vol. 101(2), pages 591-631, April.
    34. David S. Ahn & Haluk Ergin, 2010. "Framing Contingencies," Econometrica, Econometric Society, vol. 78(2), pages 655-695, March.
    35. Harlam, Bari A. & Krishna, Aradhna & Lehmann, Donald R. & Mela, Carl, 1995. "Impact of bundle type, price framing and familiarity on purchase intention for the bundle," Journal of Business Research, Elsevier, vol. 33(1), pages 57-66, May.
    36. Anastasia Burkovskaya, 2020. "On Machina’s paradoxes and limited attention," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(2), pages 231-244, October.
    37. Antonides, Gerrit & Manon de Groot, I. & Fred van Raaij, W., 2011. "Mental budgeting and the management of household finance," Journal of Economic Psychology, Elsevier, vol. 32(4), pages 546-555, August.
    38. Johannes G. Jaspersen, 2016. "Hypothetical Surveys And Experimental Studies Of Insurance Demand: A Review," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(1), pages 217-255, January.
    39. Nicholas Barberis & Ming Huang & Richard H. Thaler, 2006. "Individual Preferences, Monetary Gambles, and Stock Market Participation: A Case for Narrow Framing," American Economic Review, American Economic Association, vol. 96(4), pages 1069-1090, September.
    40. Engle, Robert F., 1984. "Wald, likelihood ratio, and Lagrange multiplier tests in econometrics," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 13, pages 775-826, Elsevier.
    41. Timothy Gilbride & Joseph Guiltinan & Joel Urbany, 2008. "Framing effects in mixed price bundling," Marketing Letters, Springer, vol. 19(2), pages 125-139, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Denis Charles & Magali Dumontet & Meglena Jeleva & Johanna Etner, 2024. "Behavioral drivers of individuals’ Term Life Insurance Demand: evidence from a Discrete Choice Experiment," EconomiX Working Papers 2024-23, University of Paris Nanterre, EconomiX.
    2. Lynn Conell‐Price & Carolyn Kousky & Howard Kunreuther, 2022. "Encouraging resiliency through autoenrollment in supplemental flood insurance coverage," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(4), pages 1109-1137, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daniel Gottlieb & Olivia S. Mitchell, 2020. "Narrow Framing and Long‐Term Care Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 87(4), pages 861-893, December.
    2. Marc A. Ragin & Benjamin L. Collier & Johannes G. Jaspersen, 2021. "The effect of information disclosure on demand for high‐load insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 88(1), pages 161-193, March.
    3. Johannes G. Jaspersen & Marc A. Ragin & Justin R. Sydnor, 2019. "Predicting Insurance Demand from Risk Attitudes," NBER Working Papers 26508, National Bureau of Economic Research, Inc.
    4. Chi, Yichun & Zheng, Jiakun & Zhuang, Shengchao, 2022. "S-shaped narrow framing, skewness and the demand for insurance," Insurance: Mathematics and Economics, Elsevier, vol. 105(C), pages 279-292.
    5. Zheng, Jiakun, 2020. "Optimal insurance design under narrow framing," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 596-607.
    6. Hwang, In Do, 2024. "Behavioral aspects of household portfolio choice: Effects of loss aversion on life insurance uptake and savings," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1029-1053.
    7. Luigi Guiso, 2015. "A Test of Narrow Framing and its Origin," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 1(1), pages 61-100, March.
    8. Fezzi, Carlo & Menapace, Luisa & Raffaelli, Roberta, 2021. "Estimating risk preferences integrating insurance choices with subjective beliefs," European Economic Review, Elsevier, vol. 135(C).
    9. Andreas Richter & Jochen Ruß & Stefan Schelling, 2019. "Insurance customer behavior: Lessons from behavioral economics," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(2), pages 183-205, July.
    10. Li Donni, P., 2010. "Risk Preference Heterogeneity And Multiple Demand For Insurance," Health, Econometrics and Data Group (HEDG) Working Papers 10/17, HEDG, c/o Department of Economics, University of York.
    11. Jiakun Zheng, 2020. "Optimal insurance design under narrow framing," Post-Print hal-04227370, HAL.
    12. Tobias Dalhaus & Barry J Barnett & Robert Finger, 2020. "Behavioral weather insurance: Applying cumulative prospect theory to agricultural insurance design under narrow framing," PLOS ONE, Public Library of Science, vol. 15(5), pages 1-25, May.
    13. Hwang, In Do, 2021. "Prospect theory and insurance demand: Empirical evidence on the role of loss aversion," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 95(C).
    14. Eduard Marinov, 2017. "The 2017 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 117-159.
    15. Committee, Nobel Prize, 2017. "Richard H. Thaler: Integrating Economics with Psychology," Nobel Prize in Economics documents 2017-1, Nobel Prize Committee.
    16. Keith Marzilli Ericson & Philipp Kircher & Johannes Spinnewijn & Amanda Starc, 2021. "Inferring Risk Perceptions and Preferences Using Choice from Insurance Menus: Theory and Evidence," The Economic Journal, Royal Economic Society, vol. 131(634), pages 713-744.
    17. Neszveda, G., 2019. "Essays on behavioral finance," Other publications TiSEM 05059039-5236-42a3-be1b-3, Tilburg University, School of Economics and Management.
    18. Barberis, Nicholas & Huang, Ming, 2009. "Preferences with frames: A new utility specification that allows for the framing of risks," Journal of Economic Dynamics and Control, Elsevier, vol. 33(8), pages 1555-1576, August.
    19. Glenn W. Harrison, 2019. "The behavioral welfare economics of insurance," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 44(2), pages 137-175, September.
    20. van der Heijden, Eline & Klein, Tobias J. & Müller, Wieland & Potters, Jan, 2012. "Framing effects and impatience: Evidence from a large scale experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 701-711.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jrinsu:v:89:y:2022:i:2:p:311-337. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/ariaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.