Correcting Optimism: Informational Interventions in Affective Decision-Making

Julián Chitiva, Penelope Hernandez and María Murgui
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Julián Chitiva: HEC Paris
Penelope Hernandez: University of Valencia
María Murgui: Universidad de Alicante

No 1660, HEC Research Papers Series from HEC Paris

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.

Keywords: Optimistic Bias; Risk Awareness; Insurance; Behavioral Decision-Making (search for similar items in EconPapers)
JEL-codes: D01 D81 D82 D91 G22 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2026-09-18
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1660

DOI: 10.2139/ssrn.7467363

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