Justin R. Sydnor, Wisconsin School of Business

The Impact of Consequence Information on Insurance Choice

Abstract

Individuals frequently make insurance choices that appear sub-optimal, possibly reflecting difficulty mapping insurance contracts to their distribution of financial consequences. We develop and experimentally test a decision aid that provides this mapping in two experiments mirroring typical health insurance decisions. Compared to standard feature-based information, our distribution based tool substantially reduces dominance violations and changes choice patterns across a range of menus. Under feature-based displays, choices can be most easily rationalized by models of heuristic choices, such as minimizing premium or deductible. With the decision aid, significantly more people have choice patterns that are better explained by expected utility theory.

Justin Sydnor is the Leslie P. Schultz Professor in Risk Management and Insurance and Professor in the Department of Risk and Insurance at the Wisconsin School of Business.

Sydnor earned his B.A. in economics and German from UW-Madison and his Ph.D. in economics from the University of California, Berkeley. He is a research associate of the National Bureau of Economic Research in the Health Care are.

His research interests are in psychology and economics, applied microeconomics, insurance markets, and risk and decision making.

You can read more about Justin Sydnor here.

CEBI contact: Christina Gravert