Article ID Journal Published Year Pages File Type
884201 Journal of Economic Behavior & Organization 2009 12 Pages PDF
Abstract

We construct and implement a test of rational consumer behavior in a high-stakes 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 life-threatening 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.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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