Does having insurance change individuals' self-confidence?

Recent research in contract theory on the effects of behavioral biases implicitly assumes that they are stable, in the sense of not being affected by the contracts themselves. In this paper, we provide evidence that this is not necessarily the case. We show that in an insurance context, being insure...

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Bibliographic Details
Published inThe Journal of risk and insurance Vol. 88; no. 2; pp. 429 - 442
Main Authors Guber, Raphael, Kocher, Martin G., Winter, Joachim
Format Journal Article
LanguageEnglish
Published Malvern Wiley Periodicals, Inc 01.06.2021
Blackwell Publishing Ltd
Subjects
Business & Economics
Economics and Business
Ekonomi och näringsliv
incentives
information
insurance choice
overconfidence
underplacement
Online AccessGet full text
ISSN0022-4367
1539-6975
DOI10.1111/jori.12319

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Summary:Recent research in contract theory on the effects of behavioral biases implicitly assumes that they are stable, in the sense of not being affected by the contracts themselves. In this paper, we provide evidence that this is not necessarily the case. We show that in an insurance context, being insured against losses that may be incurred in a real-effort task changes subjects' self-confidence. Our novel experimental design allows us to disentangle selection into insurance from the effects of being insured by randomly assigning coverage after subjects revealed whether they want to be insured or not. We find that uninsured subjects are underconfident while those that obtain insurance have well-calibrated beliefs. Our results suggest that there might be another mechanism through which insurance affects behavior than just moral hazard.
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ISSN:0022-4367
1539-6975
DOI:10.1111/jori.12319