IDEAS home Printed from https://ideas.repec.org/p/syd/wpaper/2020-01.html
   My bibliography  Save this paper

Comparative Profitability of Product Disclosure Statements

Author

Listed:
  • Burkovskaya, Anastasia
  • Li, Jian

Abstract

In insurance industry, product disclosure statements (PDSs) consist of descriptions of uncertain contingencies by the insurance plans (e.g., “hospital coverage”, “dental coverage”, etc.) and are often very different. In this paper, we model PDSs as information partitions of the state space, which can influence how a consumer perceives the structure of her choice problem and hence her deductible choices. We study a model of an insurance company that aims to promote profit by designing the framing of its PDS. We compare the company’s profits under two PDSs, one of which is coarser than the other. Our main results show that under simple conditions, the PDS consisting of finer partitions of the more expensive states is more profitable.

Suggested Citation

  • Burkovskaya, Anastasia & Li, Jian, 2020. "Comparative Profitability of Product Disclosure Statements," Working Papers 2020-01, University of Sydney, School of Economics.
    • Handle: RePEc:syd:wpaper:2020-01
    as

    Download full text from publisher

    File URL: http://econ-wpseries.com/2020/202001.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. John C. Hershey & Howard C. Kunreuther & Paul J. H. Schoemaker, 1982. "Sources of Bias in Assessment Procedures for Utility Functions," Management Science, INFORMS, vol. 28(8), pages 936-954, August.
    2. Emir Kamenica & Matthew Gentzkow, 2011. "Bayesian Persuasion," American Economic Review, American Economic Association, vol. 101(6), pages 2590-2615, October.
    3. Elliot Lipnowski & Laurent Mathevet, 2018. "Disclosure to a Psychological Audience," American Economic Journal: Microeconomics, American Economic Association, vol. 10(4), pages 67-93, November.
    4. Faruk Gul & Wolfgang Pesendorfer & Tomasz Strzalecki, 2017. "Coarse Competitive Equilibrium and Extreme Prices," American Economic Review, American Economic Association, vol. 107(1), pages 109-137, January.
    5. Dirk Bergemann & Stephen Morris, 2019. "Information Design: A Unified Perspective," Journal of Economic Literature, American Economic Association, vol. 57(1), pages 44-95, March.
    6. Ran Spiegler, 2014. "Competitive Framing," American Economic Journal: Microeconomics, American Economic Association, vol. 6(3), pages 35-58, August.
    7. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
    8. Michele Piccione & Ran Spiegler, 2012. "Price Competition Under Limited Comparability," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 97-135.
    9. Beauchêne, Dorian & Li, Jian & Li, Ming, 2019. "Ambiguous persuasion," Journal of Economic Theory, Elsevier, vol. 179(C), pages 312-365.
    10. Simon Grant & Ben Polak & Tomasz Strzalecki, "undated". "Second-Order Expected Utility," Working Paper 8340, Harvard University OpenScholar.
    11. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    12. Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2005. "A Smooth Model of Decision Making under Ambiguity," Econometrica, Econometric Society, vol. 73(6), pages 1849-1892, November.
    13. B. Douglas Bernheim, 2009. "Behavioral Welfare Economics," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 267-319, 04-05.
    14. Spiegler, Ran, 2014. "Bounded Rationality and Industrial Organization," OUP Catalogue, Oxford University Press, number 9780199334261.
    15. B. Douglas Bernheim & Antonio Rangel, 2009. "Beyond Revealed Preference: Choice-Theoretic Foundations for Behavioral Welfare Economics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(1), pages 51-104.
    16. Yuval Salant & Ariel Rubinstein, 2008. "(A, f): Choice with Frames -super-1," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(4), pages 1287-1296.
    17. Burkovskaya, Anastasia, 2017. "A Model of State Aggregation," Working Papers 2017-12, University of Sydney, School of Economics.
    18. David S. Ahn & Haluk Ergin, 2010. "Framing Contingencies," Econometrica, Econometric Society, vol. 78(2), pages 655-695, March.
    19. Yuval Salant & Ron Siegel, 2018. "Contracts with Framing," American Economic Journal: Microeconomics, American Economic Association, vol. 10(3), pages 315-346, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xavier Gabaix, 2017. "Behavioral Inattention," NBER Working Papers 24096, National Bureau of Economic Research, Inc.
    2. Michael Grubb, 2015. "Failing to Choose the Best Price: Theory, Evidence, and Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 303-340, November.
    3. Eddie Dekel & Barton L. Lipman, 2010. "How (Not) to Do Decision Theory," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 257-282, September.
    4. Anastasia Burkovskaya, 2022. "A model of state aggregation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(1), pages 121-149, February.
    5. T. Hayashi & R. Jain & V. Korpela & M. Lombardi, 2023. "Behavioral strong implementation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(4), pages 1257-1287, November.
    6. Glenn W. Harrison & Jia Min Ng, 2018. "Welfare effects of insurance contract non-performance," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 43(1), pages 39-76, May.
    7. Ran Spiegler, 2014. "Competitive Framing," American Economic Journal: Microeconomics, American Economic Association, vol. 6(3), pages 35-58, August.
    8. Kfir Eliaz & Ran Spiegler, 2015. "Beyond “Ellison’s Matrix”: New Directions in Behavioral Industrial Organization," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 259-272, November.
    9. Francesco Cerigioni & Simone Galperti, 2021. "Listing specs: The effect of framing attributes on choice," Economics Working Papers 1775, Department of Economics and Business, Universitat Pompeu Fabra.
    10. Franz Dietrich & Antonios Staras & Robert Sugden, 2021. "Savage’s response to Allais as Broomean reasoning," Journal of Economic Methodology, Taylor & Francis Journals, vol. 28(2), pages 143-164, April.
    11. Yongjie Yang & Dinko Dimitrov, 2019. "The complexity of shelflisting," Theory and Decision, Springer, vol. 86(1), pages 123-141, February.
    12. Fiorini, Luciana C. & Rodrigues-Neto, José A., 2017. "Self-consistency, consistency and cycles in non-partitional knowledge models," Mathematical Social Sciences, Elsevier, vol. 87(C), pages 11-21.
    13. Heller, Yuval, 2012. "Justifiable choice," Games and Economic Behavior, Elsevier, vol. 76(2), pages 375-390.
    14. Mauro Papi, 2022. "‘What is important is seldom urgent and what is urgent is seldom important’: a study of the strategic implications of the urgency effect in a competitive setting," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 10(2), pages 313-332, October.
    15. Dalton, P.S. & Ghosal, S., 2010. "Decisions with Endogenous Frames (Replaces CentER DP 2010-21)," Other publications TiSEM c4b257a4-972b-4e4b-a68e-8, Tilburg University, School of Economics and Management.
    16. Steiner, Jakub & Netzer, Nick & Robson, Arthur & Kocourek, Pavel, 2021. "Endogenous Risk Attitudes," CEPR Discussion Papers 16190, C.E.P.R. Discussion Papers.
    17. Hiroki Nishimura, 2014. "The Transitive Core: Inference of Welfare from Nontransitive Preference Relations," Working Papers 201419, University of California at Riverside, Department of Economics.
    18. Nishimura, Hiroki, 2018. "The transitive core: inference of welfare from nontransitive preference relations," Theoretical Economics, Econometric Society, vol. 13(2), May.
    19. Dino Borie & Dorian Jullien, 2019. "Description-dependent Choices," Working Papers halshs-01651086, HAL.
    20. Patricio Dalton & Sayantan Ghosal, 2012. "Decisions with endogenous frames," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 38(4), pages 585-600, April.

    More about this item

    Keywords

    insurance demand; framing effect; state aggregation; persuasion; behavioural industrial organization;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:syd:wpaper:2020-01. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Vanessa Holcombe (email available below). General contact details of provider: https://edirc.repec.org/data/deusyau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.