The Importance of Ethical Obligations in Insurance

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What insurers are allowed to price on varies a lot both state to state and also insurance to insurance some insurance you know more heavily regulated than others. What we saw happen there is exactly what you'd expect if everyone has to be charged the same price and offered insurance then on average the people who buy the insurance are the older, sicker individuals that drives up the price of that insurance. The government may get involved to say look we don't know how to buy insurance behind valor ignorance as it were but that's actually good rule that the government can play with.

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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