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http://hdl.handle.net/10419/43256
  
Title:Hidden regret in insurance markets: Adverse and advantageous selection PDF Logo
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
Persistent Identifier of the first edition:urn:nbn:de:hebis:30-60654
Document Type:Working Paper
Appears in Collections:CFS Working Paper Series, Universität Frankfurt a. M.

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