Can Decision Biases Improve Insurance Outcomes? An Experiment on Status Quo Bias in Health Insurance Choice

Rather than conforming to the assumption of perfect rationality in neoclassical economic theory, decision behavior has been shown to display a host of systematic biases. Properly understood, these patterns can be instrumentalized to improve outcomes in the public realm. We conducted a laboratory experiment to study whether decisions over health insurance policies are subject to status quo bias and, if so, whether experience mitigates this framing effect. Choices in two treatment groups with status quo defaults are compared to choices in a neutrally framed control group. A two-step design features sorting of subjects into the groups, allowing us to control for selection effects due to risk preferences. The results confirm the presence of a status quo bias in consumer choices over health insurance policies. However, this effect of the default framing does not persist as subjects repeat this decision in later periods of the experiment. Our results have implications for health care policy, for example suggesting that the use of non-binding defaults in health insurance can facilitate the spread of co-insurance policies and thereby help contain health care expenditure.