Is Investment in Prevention Correlated with Insurance Fraud? Theory and Experiment
Eberhard Feess et al.
What the paper says
Abstract Policy holders who engage in loss inflation by reporting higher than actual losses are a significant challenge for the insurance market. Based on a behavioral game-theoretic model, we analyze in an online experiment whether prevention taken by policy holders can provide a signal on loss inflation. We argue that the willingness for loss inflation depends on lying costs, other-regarding preferences and moral licensing. We consider treatment groups where subjects themselves decide whether to invest in prevention and control groups where a random computer draw decides on investment. We thereby disentangle the impacts of the aforementioned factors. First, we find evidence that other regarding-preferences influence loss inflation. Second, the impact of moral licensing goes in the direction predicted by our model but is not statistically significant. Third, and aligned with our model, our data suggest that other-regarding preferences and moral licensing countervail each other. We find no impact of whether the experiment is framed neutrally or in an insurance context.
1 citation
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.16 × 0.4 = 0.06 |
| M · momentum | 0.53 × 0.15 = 0.08 |
| V · venue signal | 0.50 × 0.05 = 0.03 |
| R · text relevance † | 0.50 × 0.4 = 0.20 |
† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.