Betting on Temperature: Psychological Bias in Insurance Purchases

35 Pages Posted: 19 Mar 2020

See all articles by Dongmin Kong

Dongmin Kong

Huazhong University of Science and Technology (Formerly Tongi Medical University)

Ni Qin

Huazhong University of Science and Technology (Formerly Tongi Medical University)

zhijian feng

affiliation not provided to SSRN

Shasha Liu

School of Management, Jinan University

Date Written: December 2019

Abstract

We examine effects of psychological bias on insurance purchases. In 2014, a Chinese insurance company provided high‐temperature insurance, compensating the insured if days with temperature ≥37°C beat the deductible threshold. Although the possibility of a claim is nearly zero and perfectly predicted by the historical temperatures, individual decisions are over‐influenced by the current temperature. A 1 percent increase in hourly temperature is associated with a 3.1 percent increase in hourly sales. The bias is more pronounced with extremely high temperature periods, for young people, and for individuals with a preference for gambling and with easy access to the Internet. We present the importance of psychological bias in understanding individual decisions.

Keywords: China, Decision‐making, High‐temperature insurance, Psychological bias

Suggested Citation

Kong, Dongmin and Qin, Ni and feng, zhijian and Liu, Shasha, Betting on Temperature: Psychological Bias in Insurance Purchases (December 2019). Accounting & Finance, Vol. 59, Issue 5, pp. 2993-3027, 2019, Available at SSRN: https://ssrn.com/abstract=3556752 or http://dx.doi.org/10.1111/acfi.12565

Dongmin Kong (Contact Author)

Huazhong University of Science and Technology (Formerly Tongi Medical University)

1037 Luoyu Rd
Wuhan, Hubei 430074
China

Ni Qin

Huazhong University of Science and Technology (Formerly Tongi Medical University) ( email )

1037 Luoyu Rd
Wuhan, Hubei 430074
China

Zhijian Feng

affiliation not provided to SSRN

Shasha Liu

School of Management, Jinan University ( email )

No. 601, West Huangpu Road
Guangzhou, Guangdong 510632
China

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