Narrow Framing and Long‐Term Care Insurance

Abstract

Abstract We propose a model of narrow framing in insurance and test it using data from a new module we designed and fielded in the Health and Retirement Study. We show that respondents subject to narrow framing are substantially less likely to buy long‐term care insurance than average. This effect is much larger than the effects of risk aversion or adverse selection, and it offers a new explanation for why people underinsure their later‐life care needs.