Choice Architecture and Insurance

Research in behavioral economics has shown that the way choices are presented—for example, which options are shown, in what order, and what happens if no option is selected—affects the decisions people make. In their book Nudge, Thaler and Sunstein coined the term choice architecture to characterize how framing decisions can impact on choices that  individuals make. The Wharton Risk Center is studying how choice architecture can be used to encourage better decision-making by the general public, the private and public sectors at the community, regional and national levels in preparing for adverse events that they perceive as having a low probability of occurrence. Current research focuses on the role of protection mitigation and insurance with respect to natural disasters, climate change, health and pandemics.

The Impact of a Government Risk Pool and an Opt-Out Framing on Demand for Earthquake Protection

Howard Kunreuther, Lynn Conell-Price, Paul Kovacs & Katsuichiro Goda

This paper describes the design and analysis of a web-based choice experiment that examines how the demand for earthquake protection in Quebec and British Columbia is influenced by the default option and the structure of the insurance plan. Homeowners in both provinces were given the opportunity to purchase protection against earthquake losses when presented with one of the following options: the current private insurance plan, a high deductible private insurance plan, and a proposed public-private risk pool. The default frame was changed so the homeowner could either opt-in by purchasing this coverage or opt-out of being given this protection and receiving a premium discount. Assigning participants to a public-private risk pool rather than the current private insurance plan increases the likelihood of purchasing earthquake protection by 151%. The opt-out frame leads to a likelihood greater than 1.6 of purchasing coverage relative to the opt-in frame when given the same plan structure. The policy implications of this finding are discussed.

Default Options and Flood Insurance Decisions 

Lynn Conell-Price, Howard Kunreuther, Carolyn Kousky

This project studies how changing a default option influences homeowners’ flood insurance decisions through a field experiment implemented at The Flood Insurance Agency (TFIA), a private flood insurance firm and a subsidiary of the AMWINS Group. The study examines a low-cost add-on option to a homeowner’s flood insurance policy that covers expenditures for rebuilding after flood damage with resilient materials that should reduce future flood damage. We find that changing the default choice in the application process, so that an applicant can opt-out of coverage if they do not want it, rather than needing to opt-in if they do, substantially increases its take-up. The opt-out condition also leads to a small increase in the likelihood that applicants request more than one policy quote, indicating that limited attention may play a role in the impact of the default on initial application decisions. In a complementary lab study, we will further examine the role of attention by experimentally varying the salience of the default and through post-choice survey measures.

Health Insurance, Deductible Choice, and Defaults

Howard Kunreuther and Mark Pauly

This paper reports on a controlled web-based experiment intended to see whether subjects have a predisposition toward low deductible (LD) rather than high deductible (HD) health insurance plans when the LD plan is the default.  The paper also examines whether agents’ choice between LD and HD plans remain consistent if the default and premiums are changed. We find that only slightly more than half of the respondents chose an LD plan even when it was optimal for them to do so. The research presented here should be viewed as further evidence for the importance of understanding individuals’ decision processes associated with the purchase of insurance.


Kunreuther, H., Conell-Price, L., Kovacs, P., & Goda, K. (2021). The Impact of a Government Risk Pool and an Opt-Out Framing on Demand for Earthquake Protection. NBER w29144, and SSRN 3901895.

Bradt, J. (2020). Leveraging Behavioral Science to Close the Flood Insurance Gap. Resilience Lab Notes, Wharton Risk Center, March 30.

Kunreuther, H. and M.V. Pauly (2020). Do People Have a Bias for Low-Deductible Insurance?  NBER working paper #w26994

Mol, J. M., W.J.W. Botzen, J.E. Blasch, E.C. Kranzler, and  H. Kunreuther (2020). All by myself? Testing descriptive social norm-nudges to increase individual flood preparedness. Wharton Risk Center working paper.

Robinson, P.J., W.J.W Botzen, H. Kunreuther, and S.J. Chaudhry (2020).  Default Options and Insurance Demand.  Wharton Risk Center working paper

Kousky, C. (2019). The Role of Natural Disaster Insurance in Recovery and Risk Reduction.  Annual Review of Resource Economics11.

Collier, B. L., & Ragin, M. A. (2018). The Influence of Sellers on Contract Choice: Evidence from Flood Insurance.  Journal of Risk and Insurance.

Kunreuther, H. (2018). Improving the National Flood Insurance Program.  Behavioural Public Policy, 1-15.

Kunreuther, H., M. V. Pauly and S. McMorrow (2013), Insurance and Behavioral Economics:  Improving Decisions in the Most Misunderstood Industry,  New York:  Cambridge University Press.