Market Evidence of Misperceived Prices and Mistaken Mortality Risks

45 Pages Posted: 25 Jul 2003

See all articles by Jay Bhattacharya

Jay Bhattacharya

Stanford University - Center for Primary Care and Outcomes Research; National Bureau of Economic Research (NBER)

Dana P. Goldman

RAND Corporation; National Bureau of Economic Research (NBER)

Neeraj Sood

University of Southern California; National Bureau of Economic Research (NBER); RAND Corporation; University of Southern California - Schaeffer Center for Health Policy and Economics

Date Written: July 2003

Abstract

We construct and implement a test of rational consumer behavior in a highstakes financial market. In particular, we test whether consumers make systematic mistakes in perceiving their mortality risks. We implement this test using data from secondary life insurance markets where consumers with a lifethreatening illness sell their life insurance policies to firms in return for an up-front payment. We compare predictions from two models: one with consumers who correctly perceive their mortality risk, and one with consumers who are misguided about their life expectancy, and find that our data are most consistent with the predictions made by the second model.

Suggested Citation

Bhattacharya, Jayanta and Goldman, Dana P. and Sood, Neeraj, Market Evidence of Misperceived Prices and Mistaken Mortality Risks (July 2003). NBER Working Paper No. w9863. Available at SSRN: https://ssrn.com/abstract=425599

Jayanta Bhattacharya (Contact Author)

Stanford University - Center for Primary Care and Outcomes Research ( email )

Center for Health Policy
179 Encina Commons
Stanford, CA 94305-6019
United States
650-736-0404 (Phone)
650-723-1919 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Dana P. Goldman

RAND Corporation ( email )

P.O. Box 2138
Santa Monica, CA 90407-2138
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Neeraj Sood

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

University of Southern California - Schaeffer Center for Health Policy and Economics ( email )

635 Downey Way
Los Angeles, CA 90089-3333
United States

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