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Key Findings Details

Narrow Framing and Long-Term Care Insurance
Daniel Gottlieb and Olivia S. Mitchell
WP 2015-321

· We evaluate how key elements from prospect theory shape insurance decisions and delayed retirement. Theory suggests that narrow framing plays a particularly important role in decision-making under uncertainty.

· We show that narrow framers have a substantially lower demand for long-term care insurance, and the result is robust to controlling on a host of factors including health, cautiousness, risk aversion, probability of needing LTC, and socio-demographics.

· Narrow framing is a more important deterrent to people’s LTC insurance purchases than factors previously suggested, such as risk aversion and private information.

· Narrow framing, therefore, is an important contributor for people’s unwillingness to buy long-term care coverage, thus exposing them to old-age poverty.