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CFS Working Paper Series, Universität Frankfurt a. M. >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/10419/43256
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| Title: | | Hidden regret in insurance markets: Adverse and advantageous selection  |
| Authors: | | Huang, Rachel J. Muermann, Alexander Tzeng, Larry Y. |
| Issue Date: | | 2008 |
| Series/Report no.: | | CFS Working Paper 2008/38 |
| Abstract: | | We examine insurance markets with two types of customers: those who regret suboptimal decisions and those who don.t. In this setting, we characterize the equilibria under hidden information about the type of customers and hidden action. We show that both pooling and separating equilibria can exist. Furthermore, there exist separating equilibria that predict a positive correlation between the amount of insurance coverage and risk type, as in the standard economic models of adverse selection, but there also exist separating equilibria that predict a negative correlation between the amount of insurance coverage and risk type, i.e. advantageous selection. Since optimal choice of regretful customers depends on foregone alternatives, any equilibrium includes a contract which is oþered but not purchased. |
| Subjects: | | Asymmetric Information Regret Insurance |
| JEL: | | D03 D81 D82 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CFS Working Paper Series, Universität Frankfurt a. M.
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