- Series Information
- The Oxford Handbook of Behavioral Economics and the Law
- Heuristics and Biases
- Human Prosocial Motivation and the Maintenance of Social Order
- Moral Judgment
- The Importance of Behavioral Law
- Behavioral Law and Economics: Empirical Methods
- Biasing, Debiasing, and the Law
- Alternative Behavioral Law and Economics
- Law and Prosocial Behavior
- Behavioral Ethics Meets Behavioral Law and Economics
- Law, Moral Attitudes, and Behavioral Change
- Law’s Loss Aversion
- Wrestling with the Endowment Effect, or How to Do Law and Economics without the Coase Theorem
- Probability Errors: Overoptimism, Ambiguity Aversion, and the Certainty Effect
- The Hindsight Bias and the Law in Hindsight
- Behavioral Law and Economics of Property Law: Achievements and Challenges
- Behavioral Economics and Tort Law
- Behavioral Economics and Contract Law
- Consumer Transactions
- Behavioral Economics and Insurance Law: The Importance of Equilibrium Analysis
- The End of Contractarianism?: Behavioral Economics and the Law of Corporations
- The Market, the Firm, and Behavioral Antitrust
- Behavioral Analysis of Criminal Law: A Survey
- Behavioral Economics and the Law: Tax
- Litigation and Settlement
- Behavioral Economics and Plea Bargaining
- Judicial Decision-Making: A Behavioral Perspective
- Evidence Law
- Nudges.gov: Behaviorally Informed Regulation
- Environmental Law
- Index of Names
- Subject Index
Abstract and Keywords
Because choosing insurance requires consumers to assess risks and probabilities, the demand for insurance has proven to be fertile ground for identifying deviations from rational behavior. Consumers often shun the insurance against large losses that they rationally should want (e.g., floods); and they are attracted to insurance against small losses (extended warranties, low deductibles) that no rational individual should purchase. But the welfare consequences of behavioral anomalies in insurance are complex, because consumers’ irrational behavior takes place in a market profoundly shaped by informational asymmetries. Under some conditions, deviations from rational behavior may actually generate insurance market equilibria that produce greater welfare than would be achieved in a market in which all consumers are rational. This chapter summarizes the literature and discuss the legal and policy implications of this conclusion.
Tom Baker is William Maul Measey Professor of Law and Health Sciences at the University of Pennsylvania Law School.
Peter Siegelman is Roger Sherman Professor of Law at the University of Connecticut School of Law.
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