Sean Carroll's Mindscape: Science, Society, Philosophy, Culture, Arts, and Ideas cover image

Sean Carroll's Mindscape: Science, Society, Philosophy, Culture, Arts, and Ideas

232 | Amy Finkelstein on Adverse Selection and Hidden Information

Apr 10, 2023
Amy Finkelstein, a distinguished economist from MIT and expert on adverse selection, dives into the complexities of insurance markets. She explains how information imbalances can lead to market inefficiencies, impacting both insurers and consumers. The discussion highlights the disconnect between health insurers and clients, revealing how wellness initiatives often miss the mark. Finkelstein also explores the ethics of truthfulness in insurance disclosures and the implications of policies like the Affordable Care Act on pricing and risk assessment.
01:13:32

Episode guests

Podcast summary created with Snipd AI

Quick takeaways

  • Adverse selection in insurance markets leads to a race to failure as only the riskiest individuals tend to buy insurance, resulting in market failure.
  • Private information creates a selection problem for insurers, making it challenging to accurately price policies based on different risks customers pose.

Deep dives

The Fascinating Problem of Insurance Market Selection

Insurance markets face a unique challenge known as adverse selection, where only the riskiest individuals tend to buy insurance. This creates a race to failure, as insurers raise prices to cover the costs of high-risk customers, leading to only the sickest individuals purchasing insurance. This market failure is not due to greed, but a result of the inherent nature of insurance markets. Strategies such as raising prices or enforcing mandates have been attempted, but they have their own limitations and trade-offs.

Remember Everything You Learn from Podcasts

Save insights instantly, chat with episodes, and build lasting knowledge - all powered by AI.
App store bannerPlay store banner