Does having insurance change individuals' self-confidence?

Guber, Raphael; Kocher, Martin G.ORCID: and Winter, Joachim (2021) Does having insurance change individuals' self-confidence? Journal of Risk and Insurance, 88 (2), pp. 429-442. DOI: 10.1111/jori.12319

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Recent research in contract theory on the effects of behavioral biases implicitly assumes that they are stable, in the sense of not being affected by the contracts themselves. In this paper, we provide evidence that this is not necessarily the case. We show that in an insurance context, being insured against losses that may be incurred in a real‐effort task changes subjects' self‐confidence. Our novel experimental design allows us to disentangle selection into insurance from the effects of being insured by randomly assigning coverage after subjects revealed whether they want to be insured or not. We find that uninsured subjects are underconfident while those that obtain insurance have well‐calibrated beliefs. Our results suggest that there might be another mechanism through which insurance affects behavior than just moral hazard.

Item Type: Article in Academic Journal
Additional Information (public): Deutsche Forschungsgemeinschaft. Grant Number: CRC TRR 190 and International Doctoral Program of the Elitenetzwerk Bayern. Grant Number: "Evidence‐Based Economics"
Keywords: insurance choice, overconfidence, underplacement
Funders: Deutsche Forschungsgemeinschaft, Elitenetzwerk Bayern
Research Units: Current Research Groups > Behavioral Economics
Current Research Groups > IHS general publications
Date Deposited: 14 Jul 2020 07:01
Last Modified: 06 Jul 2021 11:13
DOI: 10.1111/jori.12319
ISSN: 1539-6975

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