Heuristics and Heterogeneity in Health Insurance Exchanges: Evidence from the Massachusetts Connector

Keith Ericson and Amanda Starc

American Economic Review, 2012, vol. 102, issue 3, 493-97

Abstract: We examine heuristic decision rules in consumer choice on health insurance exchanges using data from the Massachusetts Connector. Consumers may have difficulty making optimal choices in a complex environment. The heuristic "choose the cheapest plan" is suggested by the decision context, previous research, and the data: about 20% of enrollees choose the cheapest plan possible. We find evidence of this heuristic in many models, but while heuristics may play a role, preference heterogeneity is also important. Our most flexible models find an insignificant heuristic effect. In part because holding context fixed, this heuristic is observationally equivalent to extreme price sensitivity.

Date: 2012
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