Correcting Optimism: Informational Interventions in Affective Decision-Making

Julián Chitiva, Penelope Hernandez and María Murgui
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Julián Chitiva: HEC Paris - Ecole des Hautes Etudes Commerciales
Penelope Hernandez: UV - Universitat de València = University of Valencia = Universidade de Valencia
María Murgui: Universidad de Alicante / University of Alicante

Working Papers from HAL

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: Behavioral Decision-Making; Insurance; Risk Awareness; Optimistic Bias (search for similar items in EconPapers)
Date: 2026-09-18
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-05759208

DOI: 10.2139/ssrn.7467363

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