Overconfidence , Insurance and Paternalism

  title={Overconfidence , Insurance and Paternalism},
  author={Alvaro Sandroni and Francesco Squintani},
It is well known that when agents are fully rational, compulsory public insurance may make all agents better o¤ in the Rothschild and Stiglitz (1976) model of insurance markets. We …nd that when su¢ ciently many agents underestimate their personal risks, compulsory insurance makes low-risk agents worse o¤. Hence, behavioral biases may weaken some of the well-established rationales for government intervention based on asymmetric information. The behavioral economics literature has produced broad… CONTINUE READING


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