Inferring risk perceptions and preferences using choice from insurance menus: theory and evidence

Demand for insurance can be driven by high risk aversion or high risk. We show how to separately identify risk preferences and risk types using only choices from menus of insurance plans. Our revealed preference approach does not rely on rational expectations, nor does it require access to claims data. We show what can be learned non-parametrically from variation in insurance plans, offered separately to random cross-sections or offered as part of the same menu to one cross-section. We prove that our approach allows for full identification in the textbook model with binary risks and extend our results to continuous risks. We illustrate our approach using the Massachusetts Health Insurance Exchange, where choices provide informative bounds on the type distributions, especially for risks, but do not allow us to reject homogeneity in preferences

Delay Functions as the Foundation of Time Preference: Testing for Separable Discounted Utility

Abstract Delay functions, which vary timing of rewards but …x the money dimension, can elicit the form of discount functions with minimal assumptions. We provide conditions to test for separable discounted utility (SDU). We elicit individual delay functions for a range of amounts and time horizons. When we impose SDU assumptions, we classify more than half our analysis sample as exponential discounters. However, we reject SDU assumptions for 68% of the sample in favor of magnitude-dependent discounting with time distortion. The …nding has a signi…cant implication for how experimental results are interpreted, since the SDU assumption is necessary for small-stakes behavior in experiments to be informative about large-stakes behavior in the market

Team formation and performance: evidence from healthcare referral networks

We examine the teams that emerge when a primary care physician (PCP) refers patients to specialists. When PCPs concentrate their specialist referrals — for instance, sending their cardiology patients to fewer distinct cardiologists — this encourages repeat interactions between PCPs and specialists. Repeated interactions provide more opportunities and incentives to develop productive team relationships. Using data from the Massachusetts All Payer Claims Database, we construct a new measure of PCP team referral concentration and document that it varies widely across PCPs, even among PCPs in the same organization. Chronically ill patients treated by PCPs with 1 standard deviation higher team referral concentration have 4% lower health care utilization on average, with no discernible reduction in quality. We corroborate this finding using a national sample of Medicare claims, and show that it holds under various identification strategies that account for observed and unobserved patient and physician characteristics. The results suggest that repeated PCP-specialist interactions improve team performance.P01 AG005842 - NIA NIH HHSPublished versio

Money Earlier or Later? Simple Heuristics Explain Intertemporal Choices Better Than Delay Discounting Does

Heuristic models have been proposed for many domains involving choice. We conducted an out-of-sample, cross-validated comparison of heuristic models of intertemporal choice (which can account for many of the known intertemporal choice anomalies) and discounting models. Heuristic models outperformed traditional utility-discounting models, including models of exponential and hyperbolic discounting. The best-performing models predicted choices by using a weighted average of absolute differences and relative percentage differences of the attributes of the goods in a choice set. We concluded that heuristic models explain time-money trade-off choices in experiments better than do utility-discounting models.Economic

Designing and Regulating Health Insurance Exchanges: Lessons from Massachusetts

The Massachusetts health care reform provides preliminary evidence on the function of health insurance exchanges and individual insurance markets. This paper describes the type of products consumers choose and the dynamics of consumer choice. Evidence shows that choice architecture, including product standardization and the use of heuristics (rules of thumb), affects choice. In addition, while consumers often choose less generous plans in the exchange than in traditional employer-sponsored insurance, there is considerable heterogeneity in consumer demand, as well as some evidence of adverse selection. We examine the role of imperfect competition between insurers, and document the impact of pricing and product regulation on the level and distribution of premiums. Given our extensive choice data, we synthesize the evidence of the Massachusetts exchange to inform the design and regulation on other exchanges

Expectations as Endowments: Reference-Dependent Preferences and Exchange Behavior ∗

Evidence on loss aversion and the endowment effect suggests that people evaluate outcomes with respect to a reference point. Yet little is known about what determines reference points. This experiment shows that expectations determine reference points. We endow subjects with an item and randomize the probability they will be allowed to trade it for an alternative. Subjects that are less likely to be able to trade are more likely to choose to keep their item, as predicted when reference points are determined by expectations, but not when reference points are determined by the status quo or when preferences are reference-independent. JEL classification: C91, D11, D8