Insurance and Behavioral Economics

economicsInsurance is accepted as an unusually functional tool to do away the risks which are always open in front of the human lives. When it works in a planned and projected manner, it endows with monetary shield to the concerned people and a lucrative business representation for insurance companies and the investors who work for them. But it is generally not understood correctly by insurance executives, consumers, and supervisory bodies. This book investigates the behavior of various people or agencies including individuals at risk, assurance industry decision makers, and makers of the policies at the local, state, and national level involved in the entire procedure of handling of the insurance policies all over the place. It makes a comparative study on their activities to those envisaged by standard models of alternative resulting from theory of classical economic.

When definite and real life options go astray from forecasts, the performance is deemed to be inconsistent. With substantial amounts of money involved in the process, in the form of both premiums for the insurance policies and in payouts for insurance companies, it is important to know and then appreciate the grounds or causes for uncharacteristic and inconsistent behavior. Howard Kunreuther, Mark Pauly, and Stacey McMorrow look at these problem areas through the various aspects of behavioral economics, which essentially includes sentiments, prejudices, and rules of simplified decision. The creators then try to find out if and how such behavioral problems could be customized to develop personality and social welfare.

This book is quite genuine in its approach as it can neither be taken as a defense of the insurance sector nor as an attack on its various aspects. Moreover, it is neither user’s manual nor a consumer guide to purchase insurance policies, although the authors have firm faith in the fact that consumers will get the benefit directly from the approaches it contains. To a certain extent, this book portrays various situations in which all aspects related to insurance sectors can get the benefits from. It also suggests some measures which can be fruitful for them. This may necessitate inducements, rules, and organizations to help in reducing both incompetent and abnormal and inconsistent performance, thereby encouraging such behavior which can improve individual and social welfare.