Last updated on 10/14/2016
Huang, Wei, and Mi Luo. “Overconfidence and Health Insurance Participation among the Elderly,” Working Paper.
Individuals may have imperfect information about their health status, leading to suboptimal decisions in insurance participation. Using nationally representative samples of the elderly in US and China, we find that people with lower socio-economic status and poorer health are relatively less likely to realize how unhealthy they are and this overconfidence is associated with no insurance participation. Further analysis suggests that insurance participation may not induce more accurate recognition in health status yet physical examination with updated health information provided will induce higher insurance participation among the overconfident people afterwards. These findings help to answer the two puzzles in health insurance participation - insufficient participation and advantageous selection. (JEL codes: I12, I13, J14)