Overconfidence, Insurance and Paternalism

Francesco Squintani () and Alvaro Sandroni

Economics Discussion Papers from University of Essex, Department of Economics

Abstract: 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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Date: 2007-10-04

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Journal Article: Overconfidence, Insurance, and Paternalism (2007)
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