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Diagnostic uncertainty and insurance coverage in credence goods markets: An experiment

Author

Listed:
  • Balafoutas, Loukas
  • Fornwagner, Helena
  • Kerschbamer, Rudolf
  • Sutter, Matthias
  • Tverdostup, Marina

Abstract

Credence goods markets are prone to fraudulent behavior and market inefficiencies due to informational asymmetries between sellers and customers. We examine experimentally the effects of diagnostic uncertainty and insurance coverage on the information acquisition and provision decisions by sellers and the trading decisions by consumers. Our results reveal that diagnostic uncertainty is a major source of inefficiency that decreases efficient service provision. Insurance coverage has a positive net effect on market efficiency, despite making information acquisition and efficient service provision less likely.

Suggested Citation

  • Balafoutas, Loukas & Fornwagner, Helena & Kerschbamer, Rudolf & Sutter, Matthias & Tverdostup, Marina, 2026. "Diagnostic uncertainty and insurance coverage in credence goods markets: An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 247(C).
    • Handle: RePEc:eee:jeborg:v:247:y:2026:i:c:s0167268126001940
    DOI: 10.1016/j.jebo.2026.107608
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    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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