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Does Having Insurance Change Individuals' Self-confidence?

Author

Listed:
  • Guber, Raphael

    (Munich Center for the Economics of Aging, Max Planck Society, Germany)

  • Kocher, Martin G.

    (Department of Economics, University of Vienna, Austria, and Institute for Advanced Studies, Vienna, Austria, and Department of Economics, University of Gothenburg, Sweden)

  • Winter, Joachim

    (Department of Economics, University of Munich, Germany)

Abstract

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.

Suggested Citation

  • Guber, Raphael & Kocher, Martin G. & Winter, Joachim, 2018. "Does Having Insurance Change Individuals' Self-confidence?," Economics Series 338, Institute for Advanced Studies.
    • Handle: RePEc:ihs:ihsesp:338
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    File URL: https://irihs.ihs.ac.at/id/eprint/4602
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    More about this item

    Keywords

    Overconfidence; insurance choice; underplacement;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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