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Behavioral Economics and Auto Insurance: The Role of Biases and Heuristics

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  • Pedro Brandão Graminha
  • Luís Eduardo Afonso

Abstract

Objective: this paper analyzes how framing, anchoring, and certainty effects may affect the behavior of the consumer of auto insurance. Methods: an experiment was carried out, with the face-to-face application of six versions of a questionnaire with 14 questions, for 163 respondents from an educational institution. Questions were prepared to analyze the existence of the framing effect, the anchoring effect, and the certainty effect, in addition to the deductible effect (present in several insurance products). The theoretical framework of the paper is the behavioral economics. Results: younger people, singles, and men are more prone to risk. Although the findings in general corroborate the evidence in the literature, the results of the certainty effect were contrary to expectations. The payment of the deductible increased the respondents’ risk aversion. Conclusions: the existence of biases and heuristics can cause the purchase of insurance to occur in a non-optimal way. Knowledge of the decision-making process is important for insurers and consumers. It is also relevant for regulators, in order to subsidize measures aimed at market efficiency and consumer protection, through the design of an appropriate choice architecture.

Suggested Citation

  • Pedro Brandão Graminha & Luís Eduardo Afonso, 2022. "Behavioral Economics and Auto Insurance: The Role of Biases and Heuristics," RAC - Revista de Administração Contemporânea (Journal of Contemporary Administration), ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração, vol. 26(5), pages 200421-2004.
    • Handle: RePEc:abg:anprac:v:26:y:2022:i:5:1516
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    File URL: https://rac.anpad.org.br/index.php/rac/article/view/1516/1756
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    References listed on IDEAS

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    Cited by:

    1. Cristiana Cerqueira Leal & Ines Branco-Illodo & Benilde Maria do Nascimento Oliveira & Luisa Esteban-Salvador, 2022. "Nudging and Choice Architecture: Perspectives and Challenges," RAC - Revista de Administração Contemporânea (Journal of Contemporary Administration), ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração, vol. 26(5), pages 220098-2200.

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