Probability Numeracy and Health Insurance Purchase

This paper provides new field evidence on the role of probability numeracy in health insurance purchase. Our regression results, based on rich survey panel data, indicate that the expenditure on two out of three measures of health insurance first rises with probability numeracy and then falls again. This non-monotonic relationship suggests that probability numeracy affects health insurance decisions through several channels. In the third case—the obligatory Dutch basic health insurance—we find that high levels of probability numeracy coincide with a lower deductible choice. We discuss possible explanations for the patterns we find, including status quo bias and ambiguity aversion, and the related policy implications.