Abstract
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.
| Original language | English |
|---|---|
| Pages (from-to) | 1609-1634 |
| Number of pages | 26 |
| Journal | Review of Economic Studies |
| Volume | 85 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 1 Jul 2018 |
| Externally published | Yes |
Keywords
- Projection bias
- Salience