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Use of Insurance Against a Small Loss as an Incentive Strategy

Author

Listed:
  • Daniella Meeker

    (University of Southern California, Los Angeles, California 90033; and RAND Corporation, Santa Monica, California 90401)

  • Christin Thompson

    (University of Southern California, Los Angeles, California 90033)

  • Greg Strylewicz

    (University of Washington, Seattle, Washington 98195)

  • Tara K. Knight

    (University of Southern California, Los Angeles, California 90033)

  • Jason N. Doctor

    (University of Southern California, Los Angeles, California 90033)

Abstract

The success of extended warranties and buyer protection plans suggests that insurance against a small loss has high decision utility. We explore whether the behavioral insight that people are highly averse to small chances of loss can be used to create a powerful incentive that has very low expected value. We compare decisions of individuals offered fixed payments for healthy choices to those offered insurance in exchange for healthy choices. We test the prediction that aversion to small losses will result in very high rates of health behavior uptake in exchange for insurance. Three hundred participants endowed with a $2 bonus randomly received one of two incentives for completing a scheduled health risk assessment: (1) an insurance guarantee against the 1% risk of losing the $2 bonus or (2) a fixed payment at the expected value of the insurance. Relative to the fixed payment condition, participants in the insurance intervention were 70% more likely to meet their health risk assessment appointment ( p

Suggested Citation

  • Daniella Meeker & Christin Thompson & Greg Strylewicz & Tara K. Knight & Jason N. Doctor, 2015. "Use of Insurance Against a Small Loss as an Incentive Strategy," Decision Analysis, INFORMS, vol. 12(3), pages 122-129.
    • Handle: RePEc:inm:ordeca:v:12:y:2015:i:3:p:122-129
    DOI: 10.1287/deca.2015.0314
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    References listed on IDEAS

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    2. Vicki M. Bier & Simon French, 2020. "From the Editors: Decision Analysis Focus and Trends," Decision Analysis, INFORMS, vol. 17(1), pages 1-8, March.

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