NANCY Seminar – Franck BIEN (BETA)

Event details :

Title: The impact of regret on the demand for health insurance

Abstract: In this paper, we propose to analyze the impact of regret on the demand for health insurance. On the one hand, financial regret is an emotion that is defined by comparing the result of an action chosen by an agent with the result that the agent could have obtained by choosing the best action. On the other hand, the absence of a health-producing technology leads the agent to always regret his initial state of health. We show that insurance demand depends on health preferences, the intensity of regret and the company’s markup. The introduction of regret modifies the insurance decision obtained in the context of health insurance, as it leads the agent to reduce his coverage. He exposes himself more to risk than would an agent maximizing a bivariate utility expectation, so as not to regret paying too high an insurance premium in the absence of health damage. Depending on health preferences and the intensity of regret, the agent may still select the full insurance contract. We therefore determine under which conditions the traditional results of insurance economics are confirmed or invalidated in this regret-modified bivariate utility expectation framework.