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Overcoming Bias Commenter's avatar

2. Insurance adverse selection - If those who privately know their risks are lower buy less insurance, too little insurance gets bought.

This is standard economics, but simple arithmetical argument shows it may often be wrong. The objective function of a utilitarian public policymaker should (arguably) be the risk-weighted quantity of insurance bought. Given this objective, some adverse selection may actually increase coverage (when coverage is correctly measured, ex-post not ex-ante). Some "adverse" selection may not be "adverse" at all. Google "loss coverage as a public policy objective", or look at these papershttp://tinyurl.com/cgal3g

http://www.guythomas.org.uk...

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Ronfar's avatar

You know what one of the biggest market failures in the U.S. health care market is?

Individuals don't get to choose their insurer. Their employer chooses their insurer for them. And employers have little incentive to choose the insurer their employees would prefer.

Agent failure is a well-known type of market failure, isn't it?

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