Comparative Profitability of Product Disclosure Statements

Anastasia Burkovskaya and Jian Li

No 2020-01, Working Papers from University of Sydney, School of Economics

Abstract: In insurance industry, product disclosure statements (PDSs) consist of descriptions of uncertain contingencies by the insurance plans (e.g., “hospital coverage”, “dental coverage”, etc.) and are often very different. In this paper, we model PDSs as information partitions of the state space, which can influence how a consumer perceives the structure of her choice problem and hence her deductible choices. We study a model of an insurance company that aims to promote profit by designing the framing of its PDS. We compare the company’s profits under two PDSs, one of which is coarser than the other. Our main results show that under simple conditions, the PDS consisting of finer partitions of the more expensive states is more profitable.

Keywords: insurance demand; framing effect; state aggregation; persuasion; behavioural industrial organization (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-ias
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Working Paper: Comparative Profitability of Product Disclosure Statements (2020)
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