Long-Term Care Insurance Purchase under Time-Inconsistent Risk Attitudes

18 Pages Posted: 12 Jul 2019

Date Written: July 11, 2019

Abstract

Can behavioral biases explain why individuals purchase little long-term care insurance, and do so late in life? I consider individuals whose propensity to take risks decreases when old. Unaware of their changing taste for risk, naifs delay the purchase of long-term care insurance, although this is a dominated strategy. Sophisticates, on the other hand, purchase insurance when young and, provided the elasticity of intertemporal substitution is below unity, end up better insured than naives.

Keywords: time inconsistency; naiveté; sophistication; intertemporal choice; long-term care insurance

JEL Classification: D90, D110, D150, J14, G22

Suggested Citation

Schernberg, Hélène, Long-Term Care Insurance Purchase under Time-Inconsistent Risk Attitudes (July 11, 2019). Available at SSRN: https://ssrn.com/abstract=3418316 or http://dx.doi.org/10.2139/ssrn.3418316

Hélène Schernberg (Contact Author)

ETH Zurich ( email )

Zürichbergstrasse 18
8092 Zurich, CH-1015
Switzerland

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