Working Paper: NBER ID: w9863
Authors: Jay Bhattacharya; Dana Goldman; Neeraj Sood
Abstract: We construct and implement a test of rational consumer behavior in a highstakes financial market. In particular, we test whether consumers make systematic mistakes in perceiving their mortality risks. We implement this test using data from secondary life insurance markets where consumers with a lifethreatening illness sell their life insurance policies to firms in return for an up-front payment. We compare predictions from two models: one with consumers who correctly perceive their mortality risk, and one with consumers who are misguided about their life expectancy, and find that our data are most consistent with the predictions made by the second model.
Keywords: No keywords provided
JEL Codes: D8
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| mortality risk (J17) | decision to sell life insurance (G52) |
| asset holdings (G32) | decision to sell life insurance (G52) |
| health status + non-liquid assets (D14) | decision to sell life insurance (healthier individuals) (G52) |
| health status + non-liquid assets (D14) | decision to sell life insurance (sicker individuals) (G52) |