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Correcting Optimism: Informational Interventions in Affective Decision-Making

Author

Listed:
  • Chitiva, Julián

    (HEC Paris)

  • Hernandez, Penelope

    (University of Valencia)

  • Murgui, María

    (Universidad de Alicante)

Abstract

We develop a behavioral model of affective decision-making where agents hold heterogeneous baseline beliefs. By observing coverage choices in insurance markets, we reveal underlying cognitive biases: under-insurance identifies optimism, while over-insurance identifies pessimism. To correct these distortions, we introduce policy interventions designed to shift perceived probabilities toward objective truth without altering financial payoffs. Finally, we establish sufficient behavioral conditions under which these campaigns successfully increase insurance demand, demonstrating that informational nudges are highly effective for strongly risk-averse agents.

Suggested Citation

  • Chitiva, Julián & Hernandez, Penelope & Murgui, María, 2026. "Correcting Optimism: Informational Interventions in Affective Decision-Making," HEC Research Papers Series 1660, HEC Paris.
    • Handle: RePEc:ebg:heccah:1660
    DOI: 10.2139/ssrn.7467363
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    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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