The Importance of Being Truthful With Insurance Companies

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I wouldn't advise it because right it's very expensive to verify all this information and so my understanding is for example with life insurance they don't well they do do a medical exam but for many things they will take yourself reported word for it. But then if you actually have a claim then they'll investigate and so it's a very very bad idea to try and shade the truth. It just messes things up in aggregate. I know more about my risk than they ask I need to be truthful these wanted you know."

If you knew exactly when every person was going to die, or require medical care, you could make a killing buying and selling insurance. Nobody knows these things, of course -- the future is hard to predict -- but some people know something about the future that other people don't. This sets up adverse selection: the ability of one party to leverage information another party doesn't have, in order to gain an economic advantage. Economist Amy Finkelstein is an expert in this phenomenon, as well as the usefulness of empirical studies in economic research.

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Amy Finkelstein received her Ph.D. in economics from the Massachusetts Institute of Technology. She is currently John & Jennie S. MacDonald Professor of Economics at MIT. She is the co-director and research associate of the Public Economics Program at the National Bureau of Economic Research, and the co-Scientific Director of J-PAL North America. Among her awards are a MacArthur Fellowship and the John Bates Clark Medal. Her recent book, with co-authors Liran Einav and Ray Fisman, is Risky Business: Why Insurance Markets Fail and What to Do About It.

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