Convincing Non-Specialists to Cancel their Small Item Insurance

The question of consumer rationality has become one of increasing importance in economics, with research from academics Dan Ariely and Richard Thaler offering accessible insights into human behavior, for example through the books Predictably Irrational (Ariely, 2008) and Nudge (Thaler & Sunstein, 2008). Insurance purchases are of particular interest. There has been a rule of thumb that if you cannot afford to replace an item in case of loss, then, and only then, insurance should be purchased. For many items, such as a home or health, insurance then is called for. In some instances, for example car, the purchase of insurance (or at least third-party insurance) is required by law. However, in recent years the increase in popularity of items like smartphones and portable computers has also seen a rise in insurances for small items. Often small items fail the rule of thumb test mentioned above, and consumers have the means to replace them in case of loss. Still, however, they insure them which can be viewed as economically irrational behavior. As a result, this research aims to convince consumers to cancel insurances of small items (assuming they indeed can afford to replace the item in case of loss) and implements this through six one-on-one interviews. The interviews were designed as an iterative process, i.e. the results from one interview lead to an improved design for subsequent interviews. In this way, arguments against the insurance purchase could be developed and tested to see if they were effective. The structure of the interviews used a methodology from clinical psychology, an unusual step for an economic paper. However, the process of Motivational Interviewing, which addresses ambivalence towards change, has relevance for this research. Interviews were conducted with clients who had purchased insurance for their smartphones. They were paying between €9.99- €15.99 per month, and raised multiple arguments in favor of the purchase. For this research, the researcher will refer to herself as the consultant and to those she interviews as her clients. This terminology, common in decision analysis, attempts to bridge the gap between academics and consumers, and also reflects the intention to improve the consumer’s welfare. The rest of the paper is structured as follows. Section 2 discusses the relevant literature for background, section 3 provides the methodology used and interview design, section 4 3 explains the results from the interviews, and section 5 discusses the results and their limitations while section 6 concludes the paper.