Low insurance take-up in low-income populations is not easily explained by the standard single-period expected utility model of insurance that overlooks the relevance of time preference when liquidity is constrained. We design field survey instruments to elicit quasi-hyperbolic time preferences, as well as prospect theory risk preferences, and use them to examine whether time preferences explain health insurance behavior of low-income Filipinos. Consistent with theory, those with stronger parameterized time preference are less likely to insure and the partial association is most pronounced at low wealth where liquidity is most likely to be constrained. Among those with better understanding of insurance, lower take-up is also associated with present bias. We do not find that insurance is significantly associated with risk preferences.
We thank Timo Lambregts and Matthew Robson for comments. We are grateful to the World Bank for funding the Daisy III survey and especially Caryn Bredenkamp for the opportunity to collect the data on risk perceptions and preferences as part of this survey. The research of Aurélien Baillon is made possible by a Vidi grant of the Netherlands Organization for Scientific Research. Owen O'Donnell is supported by the Swiss Agency for Development and Cooperation/National Science Foundation Programme for Research on Global Issues for Development through the grant, “Inclusive social protection for chronic health problems” (400640_160374, PI: Jürgen Maurer).
© 2022 The Authors. Journal of Risk and Insurance published by Wiley Periodicals LLC on behalf of American Risk and Insurance Association.