Narrow Framing and Life Insurance / Daniel Gottlieb, Kent Smetters.

By:

Gottlieb, Daniel

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w18601.Publication details: Cambridge, Mass. National Bureau of Economic Research 2012.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: Life insurance is a large yet poorly understood industry. A final death benefit is not paid for a majority of policies. Insurers make money on customers that lapse their policies and lose money on customers that keep their coverage. Policy loads are inverted relative to the dynamic pattern consistent with reclassification risk insurance. As an industry, insurers lobby to ban secondary markets despite the liquidity provided. These (and other) stylized facts cannot easily be explained by information problems alone. We demonstrate that a simple model of narrow framing, where consumers do not fully account for their need for future liquidity when purchasing insurance, offers a simple and unified explanation.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w18601 (Browse shelf(Opens below))	Not For Loan

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December 2012.

Life insurance is a large yet poorly understood industry. A final death benefit is not paid for a majority of policies. Insurers make money on customers that lapse their policies and lose money on customers that keep their coverage. Policy loads are inverted relative to the dynamic pattern consistent with reclassification risk insurance. As an industry, insurers lobby to ban secondary markets despite the liquidity provided. These (and other) stylized facts cannot easily be explained by information problems alone. We demonstrate that a simple model of narrow framing, where consumers do not fully account for their need for future liquidity when purchasing insurance, offers a simple and unified explanation.