Comments on: Insurance As Signal

By: The Desert Lamp » Technology » ¿Cómo se dice “D2L”?

The Desert Lamp » Technology » ¿Cómo se dice “D2L”? — Mon, 26 Oct 2009 05:36:42 +0000

[...] tempting to turn all defense of relative ineffectiveness to a Hansonian signal (see: health insurance, child care, voting, and the female orgasm (you mean, coitus?)), but that approach very much [...]

By: ¿Cómo se dice “D2L”? « The Arizona Desert Lamp

¿Cómo se dice “D2L”? « The Arizona Desert Lamp — Wed, 21 Oct 2009 16:04:16 +0000

By: ASUA Senate Meeting, 16 Sep 2009: Cars With Guns « The Arizona Desert Lamp

ASUA Senate Meeting, 16 Sep 2009: Cars With Guns « The Arizona Desert Lamp — Thu, 17 Sep 2009 06:07:59 +0000

[...] their firearm before they go to work, who would know the difference? In the end, the bill is mostly Hansonian signaling. Gun-rights supporters want to show that they love guns, and gun-control want to signal that [...]

By: botogol

botogol — Wed, 16 Sep 2009 08:20:05 +0000

yes, but why is it that consumers fail to buy enough catastrophic insurance, but overspend on insuring against common everyday eventualities.

Robin suggests that people don’t like to contemplate bad things happening, so underinsure…

Perhaps it’s just the marketing. Perhaps if you could buy $100 life-insusrance tokens at the checkout – good for 10 years, pay $10,000, standardised policy terms, then people wd buy more of it. It’s all that going to see a financial advisor stuff that puts people off.

By: ES

ES — Tue, 15 Sep 2009 23:26:55 +0000

The explanation is pretty trivial: it lets the retailer extract some extra consumer surplus from people who don’t care or don’t have the math skills to figure out whether it’s a waste of money.

By: Buying Protection « Modeled Behavior

Buying Protection « Modeled Behavior — Tue, 15 Sep 2009 21:21:57 +0000

[...] ~ September 15th, 2009 in Economics Hanson via Kling My best guess is that most insurance is bought not to reduce risk but instead to signal [...]

By: Grant

Grant — Tue, 15 Sep 2009 20:21:16 +0000

This looks like the paper the article was based on, which says the insurance was priced “fairly”, and was actually based on rainfall:
http://ideas.repec.org/p/wbk/wbrwps/4425.html

Though I’m not that familiar with academia, I oddly found two different abstracts for this paper. Each had a different explanation for why the farmers did not take the insurance:

There is suggestive evidence that the reduced take-up of the insured loan was due to the high cognitive cost of evaluating the insurance: insured loan take-up was positively correlated with farmer education levels. By contrast, the take-up of the uninsured loan was uncorrelated with farmer education.

There is suggestive evidence that reduced take-up of the insured loan was due to farmers already having implicit insurance from the limited liability clause in the loan contract: insured loan take-up was positively correlated with farmer education, income, and wealth, which may proxy for the individual’s default costs. By contrast, take-up of the uninsured loan was uncorrelated with these farmer characteristics.

Of course these explanations don’t rule out signaling incentives, but it hardly seems obvious to me that signaling is the major cause here.

By: Doug S.

Doug S. — Tue, 15 Sep 2009 18:39:19 +0000

Only liability car insurance is mandatory. If you were to injure someone else or damage their property with your car, you have to be able to pay for the damage – and the damage can easily be more than most people are able to pay. Insuring against damage to yourself and your own property is not mandatory.

By: Tim Tyler

Tim Tyler — Tue, 15 Sep 2009 18:18:00 +0000

Re: “Why do people buy insurance? The very solid economic theory of risk-aversion explains why insurance is a good idea”

What that theory says is that you should only insure what you can’t cover – cases where you have inside knowledge about your risk – and what you are legally obliged to insure.

By: dWj

dWj — Tue, 15 Sep 2009 16:57:53 +0000

> car insurance is mandatory–and health insurance may soon be

Indeed, it seems to me we may well be forcing health insurance on people as a way to signal that “we” care about them, more than because it’s actually an efficient way to reach a desirable outcome.