We find that daily air pollution levels have a significant effect on the decision to purchase or cancel health insurance in a manner inconsistent with rational choice theory. A one standard deviation increase in daily air pollution leads to a 7.2% increase in the number of insurance contracts sold that day. Conditional on purchase, a one standard deviation decrease in air pollution during the cooling-off(i.e. cost-free cancellation) period relative to the order-date level increases the return probability by 4.0%.We explore a range of potential mechanism and find the most support for projection bias and salience.
|Number of pages||26|
|Journal||Review of Economic Studies|
|Publication status||Published - 1 Jul 2018|
- Projection bias