Examining the impact of vertical health insurance menus, prevalent in global systems, Dr. Lan Zou and Prof. Dr. Christian Biener explore the challenge of rationalizing the presence of intermediate options due to consumer sorting/selection behavior.

Theoretical work has suggested that these options do not contribute to enhanced consumer welfare. Yet, there has been limited direct examination of alternative methods, such as removing the intermediate options. In their experiment, the authors engaged consumers to assess the effects of providing information aids and removing intermediate options. The results reveal that neither intervention—providing information aids or removing intermediate options—resulted in overall welfare improvement. This stagnation in welfare is primarily due to some consumers making larger errors by shifting to opposite contracts, which offsets the potential welfare benefits for others.

When examining the mechanism of why these interventions are not working, a new finding has emerged: consumers hold static health status beliefs, which are not updated by providing risk information. This highlights the limitations of decision aids. If consumers hold persistently biased beliefs, this questions research designs that aim to improve consumer decision-making while assuming they hold correct beliefs.

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