The Impact of Behavioral Economics on Consumer Decision-Making in The Insurance Industry
Keywords:
Policy Design, Risk Perception, Cognitive Biases, Insurance Industry, Consumer Decision-Making, Behavioral EconomicsAbstract
Introduction: Traditionally, economic theories propose that individuals make decisions based on rational analysis of risks and benefits. However, behavioral economics suggests that cognitive biases and psychological factors can lead to the reactions that deviate from the idea of rationality. This paper investigates how these effects, such as framing, overconfidence, loss aversion can shape consumer choices when we are navigating in the insurance industry. Methods: By using a multifarious methodological approach, that analyzes secondary data and different literary sources. Results: The analysis reveals that psychological biases such as framing, risk aversion and overconfidence significantly influence behavior in the insurance industry. These biases lead to consumers to make decisions that diverge from the traditional rational model. Conclusion: The following research concludes that mental shortcuts and emotions impact how we choose insurance rather than pure logic. To help consumers make better decisions insurance companies should consider these behaviors for more effiecient market in the future.
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