behavioral economics in insurance

Behavioral economics in insurance studies how people's decision-making is influenced by psychological factors, biases, and emotions, rather than purely rational calculations. It explains why individuals sometimes buy more or less coverage than they need or choose products inconsistent with their best interests. For example, people might avoid planning for unlikely risks due to optimism bias or overweigh small probabilities. Insurers use this understanding to design policies and communication strategies that align better with actual human behavior, making products more appealing and helping consumers make more informed choices.