Sean Carroll's Mindscape: Science, Society, Philosophy, Culture, Arts, and Ideas 232 | Amy Finkelstein on Adverse Selection and Hidden Information
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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.
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Insurance's Promise and Failure
- Insurance offers security in an uncertain world, touching many aspects of our lives.
- However, it often fails to deliver on its promise, leading to negative consequences.
Halley's Actuarial Miscalculation
- Edmund Halley and Abraham de Moivre developed early actuarial tables for annuities, but mispriced them.
- They didn't account for selection bias, assuming annuity buyers were randomly drawn from the population.
Insurance: A Different Market
- Insurance markets differ from typical markets like cars or smartphones.
- The buyer's characteristics matter significantly, impacting the seller's value and market dynamics.
