Narrow Framing and Long-Term Care Insurance
We propose a model of narrow framing in insurance and test it using data from a new module we designed and fielded in the Health and Retirement Study. We show that respondents subject to narrow framing are substantially less likely to buy long-term care insurance than average. This effect is distinct from, and much larger than, the effects of risk aversion or adverse selection, and it offers a new explanation for why people underinsure their later-life care needs.
The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Michigan Retirement Research Center. Additional support was provided by the University of Michigan’s Health and Retirement Study, the Pension Research Council/Boettner Center of the Wharton School, and the Department of Business Economics and Policy at the Wharton School of the University of Pennsylvania. This research is part of the NBER programs on Aging and Public Economics, and the Insurance Working Group. Programming assistance was ably provided by Yong Yu. Comments and suggestions from Sarah Auster, Paul Heidhues, Botond Koszegi, and Matthew Rabin are gratefully acknowledged. Opinions and errors are solely those of the authors and not of the institutions with whom the authors are affiliated. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Olivia S. Mitchell
Mitchell serves as an Independent Trustee for the Wells Fargo Advantage Funds and has received more than $10,000 from the TIAA-CREF Institute for research on retirement security.