(Most) Everyone is Above Average: Optimism Bias and Insurance Nonparticipation

41 Pages Posted: 17 Mar 2023

See all articles by David L. Dicks

David L. Dicks

Baylor University - Department of Finance, Insurance & Real Estate

James R. Garven

Baylor University - Department of Finance, Insurance & Real Estate

James I. Hilliard

Temple University - Department of Risk, Insurance & Healthcare Management

Date Written: March 13, 2023

Abstract

We explore demand for insurance in a setting where nonparticipation has been com-mon: health insurance. We present a stylized model of insurance demand in which consumers make optimistically-biased assessments about future health outcomes. The standard model would predict participation unless insurance is too costly. Our analysis additionally suggests that households need to have high enough wealth and not be too optimistic to participate. We provide empirical evidence consistent with our model. To proxy for optimism bias, we look at the mismatch between objective and subjective measures of well-being from census survey data.

Keywords: optimism bias, nonparticipation, insurance demand, health insurance

JEL Classification: D81, G22, H51, I11, I13

Suggested Citation

Dicks, David L. and Garven, James R. and Hilliard, James I., (Most) Everyone is Above Average: Optimism Bias and Insurance Nonparticipation (March 13, 2023). Available at SSRN: https://ssrn.com/abstract=4387805 or http://dx.doi.org/10.2139/ssrn.4387805

David L. Dicks

Baylor University - Department of Finance, Insurance & Real Estate ( email )

P.O. Box 98004
Waco, TX 76798-8004
United States

James R. Garven (Contact Author)

Baylor University - Department of Finance, Insurance & Real Estate ( email )

One Bear Place #98004
Baylor University
Waco, TX 76798-8004
United States

HOME PAGE: http://business.baylor.edu/directory/?id=James_Garven

James I. Hilliard

Temple University - Department of Risk, Insurance & Healthcare Management ( email )

1801 Liacouras Walk
Philadelphia, PA 19122
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
78
Abstract Views
383
Rank
570,949
PlumX Metrics