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Overconfidence, Insurance and Paternalism

  • Francesco Squintani

    ()

  • Alvaro Sandroni

It is well known that when agents are fully rational, compulsory public insurance may make all agents better off in the Rothschild and Stiglitz (1976) model of insurance markets. We find that when sufficiently many agents underestimate their personal risks, compulsory insurance makes low-risk agents worse off. Hence, behavioural biases may weaken some of the well-established rationales for government intervention based on asymmetric information.

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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 643.

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Date of creation: 04 Oct 2007
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Handle: RePEc:esx:essedp:643
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  8. Heidhues, Paul & Köszegi, Botond, 2005. "The Impact of Consumer Loss Aversion on Pricing," CEPR Discussion Papers 4849, C.E.P.R. Discussion Papers.
  9. Lu�s Santos-Pinto & Joel Sobel, 2005. "A Model of Positive Self-Image in Subjective Assessments," American Economic Review, American Economic Association, vol. 95(5), pages 1386-1402, December.
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