THREE ESSAYS ON DECISION MAKING IN INSURANCE CHOICES

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This dissertation consists of three essays on decision making in real and hypothetical insurance contexts and the factors that impact those decisions. Risky and complicated dynamic decisions are virtually unavoidable in health and property insurance contexts, and these studies help us to gain a greater understanding of how individuals respond and their underlying preferences. In Chapter 1, I examine prescription-drug purchasing behavior of enrollees in Medicare Part D, and in particular I study the extent to which their behavior changes in anticipation of uncertain but predictable changes in insurance-coverage generosity. I develop a simple heuristic model that illustrates how enrollees ought to behave. The model predicts that any changes in spending should be smooth and occur far in advance of changes in insurance-coverage generosity (except at the end of the year). I then find empirical evidence that enrollees do anticipate and respond more optimally to the Medicare Part D pricing schedule than suggested by prior literature. In Chapter 2, with coauthors, I conduct a novel experiment to understand how risk preferences in insurance contexts differ between the lab and the field. We employ an experimental setting to identify objective versus subjective beliefs and to evaluate how ambiguity might contribute to those beliefs. We find that, similar to prior work using field data, subjects are virtually risk-neutral and probability distortions are an important factor to explain behavior; however, there is more heterogeneity in probability distortions in the lab. We further find that subjects respond to ambiguity by making less risky choices, and their preferences may be consistent with maxmin utility. Finally, in Chapter 3, with coauthors, I examine the stability of risk preferences across contexts involving different stakes. Using data on households’ deductible choices in three property-insurance coverages and their limit choices in two liability- insurance coverages, we assess the stability across the five contexts in the ordinal ranking of the households’ willingness to bear risk. We find evidence of stability across contexts involving stakes of the same magnitude, but not across contexts involving stakes of very different magnitudes. Our results appear to be robust to heterogeneity in wealth and access to credit.
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2018-08-30
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Experiment; Health; Economics; Insurance; Behavioral; Microeconomics
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O'Donoghue, Edward Donald
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Barseghyan, Levon
Molinari, Francesca
Carey, Colleen Marie
Degree Discipline
Economics
Degree Name
Ph. D., Economics
Degree Level
Doctor of Philosophy
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Government Document
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dissertation or thesis
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