Long-Term Care Insurance Purchase under Time-Inconsistent Risk Attitudes
18 Pages Posted: 12 Jul 2019
Date Written: July 11, 2019
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: Suggested Citation