« Rappers on *The Economist* magazine | Main | Assorted links »
Appeasing the Gods
Economists say that people buy insurance to cover themselves if something bad happens. Some experiments by psychologists suggest that people buy insurance because they think it will prevent the bad thing from happening. John Tierney has more.
Posted by Alex Tabarrok on May 6, 2008 at 01:03 PM in Science | Permalink
Comments
To some degree that is true. When you've got insurance you've got someone else whose well being is partially dependent on your well being. They may try to increase theirs by increasing yours.
An example of this is insurance companies working to make intersections safer.
“A safety and traffic analysis of three “dangerous” intersections within Fairfax County as identified in State Farms Insurance Company’s 1998 Most Dangerous Intersections project. The study was funded by a grant from the State Farm Insurance Company.”
http://www.vhb.com/template_project.asp?pagename=prj_bmifairfax
Posted by: Mason at May 6, 2008 1:14:10 PM
Um, yeah, that's probably true in some cases. For example, we got quite a lot of insurance when we moved and hired professional movers. I saw it as signing up for a particularly inexpensive protection racket.
Earthquake insurance? Not so much.
Posted by: Tony at May 6, 2008 1:18:05 PM
I think the term is 'anticipated decision regret' - people may buy insurance they don't need because they think ahead to the regret they would feel if the bad thing happened and they *weren't* insured.
The same reason leads people to participate in inefficient and ineffective health screening. It does them more harm than good on average, but they are swayed by the fear of anticipated regret if the screened illness occured and they had turned-down a chance of screening.
Posted by: BGC at May 6, 2008 2:31:53 PM
"And they believed that a professor was more likely to call on them in class if they didn’t do the assigned reading."
But this is true, right? Aren't professors like wolves in that they can smell fear?
Posted by: Jacob at May 6, 2008 2:44:14 PM
Surely you've heard of bringing an umbrella with you to ward off the rain that day?
Posted by: at May 6, 2008 3:33:54 PM
I think the term is 'anticipated decision regret' - people may buy insurance they don't need because they think ahead to the regret they would feel if the bad thing happened and they *weren't* insured.
This idea is explicitly brought up by the author of the article, who then gives examples of experiments that argue against this hypothesis. Check it out, it's interesting!
Posted by: mk at May 6, 2008 6:23:02 PM
Fascinating article. It's interesting to learn how much we are like kids who make elementary logic mistakes.
In particular, these misjudgements I think might come about due to anticipated regret, it's just that we don't have a logical anchor that ensures we precisely focus the blame on regret rather than probability. So we unconsciously inflate the probabilities.
I say "unconsciously inflate" because I think if you ask people directly "does this lower your likelihood of an accident", they'd say "no." I would guess that the cited studies do NOT ask people to directly estimate the relative likelihood of an accident; rather, I would guess they request both estimates (under separate circumstances) and compare the estimates after the fact.
In our social interactions, we often act so as to "appease the gods", reinforcing each other's logical error. In economic terms, there may just not be enough incentive for humans to successfully distinguish between high-regret and high-probability occurrences.
I'm reminded of the bartenders who give you more liquor if you ask for it in a short, squat glass. An elementary logical error, made by trained professionals.
Posted by: mk at May 6, 2008 6:36:32 PM
How is Robin Hanson not examining how this bias leads to irrational decision making in health care?
Posted by: Rue Des Quatre Vents at May 6, 2008 6:54:57 PM
...whereas I feel like I wasted my money if the bad thing doesn't happen. Like, think of how many hours we spent adjusting the kids' car seats just-so, and neither of us has ever been in a car accident. (I know my logic is just as fallacious)
Posted by: Paul N at May 6, 2008 10:18:21 PM
I believe the 'better safe than sorry' notion is referred to as 'Pascal's Wager'.
Posted by: Gil at May 7, 2008 1:47:34 AM
yea!!!I believe the 'better safe than sorry' notion is referred to as 'Pascal's Wager'.
Posted by: Overseas Removal at May 7, 2008 2:53:38 AM
good!!!!
This idea is explicitly brought up by the author of the article, who then gives examples of experiments that argue against this hypothesis. Check it out, it's interesting!Overseas Removal
Posted by: show at May 7, 2008 2:55:49 AM
Buying insurance to keep bad things from happening is like not having a will for fear that getting one
will increase the chances of dying. (As far as I can tell, it's 100% whether you do or don't on that one.)
Posted by: Tim at May 7, 2008 7:52:43 AM
Did anybody else think of Double Indemnity?
Posted by: Zach at May 7, 2008 10:07:11 AM
I'm a little surprised nobody's mentioned moral hazards yet. The ironic thing is not that getting insurance doesn't make the bad thing less likely to happen, but that it can make the bad thing more likely to happen.
Posted by: James Hanley at May 7, 2008 2:17:51 PM
