Do Hypothetical Experiences Affect Real Financial Decisions? Evidence from Insurance Take-up
AbstractThis paper uses a novel experimental design to study the effect of hypothetical personal experience on the adoption of a new insurance product in rural China. Specifically, we conduct a set of insurance games with a random subset of farmers. Our findings show that playing insurance games improves insurance take-up in real life by 48%. Exploring the mechanism behind this effect, we show that the effect is not driven by changes in risk attitudes, changes in perceived probability of disasters, or learning of insurance benefits, but is driven mainly by the experience acquired in playing the insurance game. Moreover, we find that, compared with experience with real disasters in the previous year, the hypothetical experience gained in the insurance game has a stronger effect on insurance take-up, implying that the impact of personal experience displays a strong recency effect.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 46862.
Date of creation: 09 May 2013
Date of revision:
Insurance; Take-up; Game; Experience; Learning;
Find related papers by JEL classification:
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
- M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
- Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-05-19 (All new papers)
- NEP-EXP-2013-05-19 (Experimental Economics)
- NEP-IAS-2013-05-19 (Insurance Economics)
- NEP-MFD-2013-05-19 (Microfinance)
- NEP-TRA-2013-05-19 (Transition Economics)
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