Economists say that people buy insurance to cover themselves if something bad happens. Some experiments by psychologists suggest that people buy insurance because they think it will prevent the bad thing from happening. John Tierney has more.
Appeasing the Gods
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To some degree that is true. When you’ve got insurance you’ve got someone else whose well being is partially dependent on your well being. They may try to increase theirs by increasing yours.
An example of this is insurance companies working to make intersections safer.
“A safety and traffic analysis of three “dangerous† intersections within Fairfax County as identified in State Farms Insurance Company’s 1998 Most Dangerous Intersections project. The study was funded by a grant from the State Farm Insurance Company.†
http://www.vhb.com/template_project.asp?pagename=prj_bmifairfax
I think the term is ‘anticipated decision regret’ – people may buy insurance they don’t need because they think ahead to the regret they would feel if the bad thing happened and they *weren’t* insured.
The same reason leads people to participate in inefficient and ineffective health screening. It does them more harm than good on average, but they are swayed by the fear of anticipated regret if the screened illness occured and they had turned-down a chance of screening.
Surely you’ve heard of bringing an umbrella with you to ward off the rain that day?
Fascinating article. It’s interesting to learn how much we are like kids who make elementary logic mistakes.
In particular, these misjudgements I think might come about due to anticipated regret, it’s just that we don’t have a logical anchor that ensures we precisely focus the blame on regret rather than probability. So we unconsciously inflate the probabilities.
I say “unconsciously inflate” because I think if you ask people directly “does this lower your likelihood of an accident”, they’d say “no.” I would guess that the cited studies do NOT ask people to directly estimate the relative likelihood of an accident; rather, I would guess they request both estimates (under separate circumstances) and compare the estimates after the fact.
In our social interactions, we often act so as to “appease the gods”, reinforcing each other’s logical error. In economic terms, there may just not be enough incentive for humans to successfully distinguish between high-regret and high-probability occurrences.
I’m reminded of the bartenders who give you more liquor if you ask for it in a short, squat glass. An elementary logical error, made by trained professionals.
…whereas I feel like I wasted my money if the bad thing doesn’t happen. Like, think of how many hours we spent adjusting the kids’ car seats just-so, and neither of us has ever been in a car accident. (I know my logic is just as fallacious)
yea!!!I believe the ‘better safe than sorry’ notion is referred to as ‘Pascal’s Wager’.
Buying insurance to keep bad things from happening is like not having a will for fear that getting one
will increase the chances of dying. (As far as I can tell, it’s 100% whether you do or don’t on that one.)
I’m a little surprised nobody’s mentioned moral hazards yet. The ironic thing is not that getting insurance doesn’t make the bad thing less likely to happen, but that it can make the bad thing more likely to happen.
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