THE IMPACT OF PSYCHOLOGICAL BIASES ON FINANCIAL DECISION MAKING OF

HEALTH INSURANCE AMONG INDIVIDUALS IN KERALA

(Research proposal submitted before the Doctoral committee for getting e registration for
Ph.D. I n commerce from the university of Calicut)

Research Centre:

CHRIST COLLEGE (AUTONOMOUS)

IRINJALAKUDA

Applicant

MERIN TITTY D CUNHA

MARCH2024
INTRODUCTION

“A policy of life insurance is the cheapest and safest mode of making ascertain provision
for one’s. family.

Benjamin franklin.

Health insurance policies are taken by individuals to cover their anticipated medical
expenses and avail tax benefits. Health insurance protects the policyholder from unexpected
medical expenses. Human life is always exposed to numerous risks and uncertainties. As the
quote stated above, it is health that is the real wealth for every person. Being healthy is very
important for every human being. Improvement of health status is vital for enhancing human
capabilities. Ill health will bring additional expenditure to the family, especially to poor and
middle-class families in society (Vellakkal, 2007). Universal health coverage for India has
stated that health insurance as a system has not been able to provide enough financial
protection but has rather led to increased unreliability due to over and unnecessary utilization
of services. Different studies in different countries have contributed in identifying this
psychological bias and in measuring their quantitative impact on financial decision-making.
This will be as well the aim of the study for the adults aged 18-65 policy holders and non-
policy holders. studying the impact of psychological biases on the financial decision making
of health insurance among individuals Kerala. The research questions the study aims to
answer is: To what extent are the Kerala affected by psychological biases while taking
financial decisions?

Psychological bias: Psychological bias is also known as cognitive bias. The tendency to
make decisions or to take action in an unknowingly irrational way or deviation from rational
judgment.

Health insurance: Health insurance is a type of insurance that pays for all or part of a
person's health care bills. It can be defined as “any form of insurance whose payment is
contingent on insured incurring additional expenses or losing income because of incapacity
or loss of good health” (phillip2007)
Individual: Individual health policy is a coverage that the insured person purchases on their
own to maintain their health and take care of medical care whenever required by the insured
person. A medical insurance premium is required to be paid before claiming their cover.

Review of literature

Review of related literature helps to sharpen and define understanding of existing knowledge
in the problem area and provides a background for the research. Any worthy research in any
field of knowledge requires an adequate familiarity with the literature available in that field
of study which subsequently helps to find out the gap in research and thus opens new scope
for further studies. The objective of the present study is to find the actual usage of health
insurance policies. This study explores the social, financial, and psychological factors
affecting investment behaviour particularly health insurance among individuals. This study
tried to identify the crucial variables influencing the behaviour of investors through a
comprehensive literature survey.

Allcock, S. H., Young, this study mainly focused on socio demographic patten of health
insurance. A mixed-method approach is used for this research. The study applies both
qualitative and quantitative techniques. To understand the causes of overconfidence bias in
the individual investors, which was done through semi-structured interviews. The collected
information when justified with the literature was used to adapt the instruments that matched
with information for the individual investors. The crucial part of the exploratory investigation
is not to ask the participants clearly about the causes of overconfidence bias but try to
understand their beliefs, perception, and preferences of participants that were analysed by the
researchers to understand the determinants of overconfidence bias. A brief set of questions
was set to screen the participants and identify overconfident investors. There is non -
probability technique can be used.

Baumann et al., 2022) the work in this paper to his focusing on pubic and patient
involvement in health policy decision making on the health system. They can be used for
PRISMA extension for scoping reviews. data base can be used for pub med, Scopus, there
can be used for predeveloped data extraction sheet. its focus group is governmental
organisation. so. it is found that receive any specific grant from founding agencies in the
public commercial, or not for profit sector.
 Dervishaj, B., & Xhaferi, T. (2020). This paper attempted to focus on impact of
psychological biases on the decision making the paper uses primary data provided through
structured interviews with 180 individual investors and one semi-structured interview with an
expert of the financial market in Albania. Exploratory financial analysis, Cronbach alpha test
and descriptive analysis are used through R-software. The analysis and its results conclude a
significant presence of psychological biases on the Albanian individual investor behaviour.
As there is too little research done on this field in Albania, the study informs of the presence
of these biases and tries to explain their impact not only on the previous crisis the country has
experienced, but also on the current situation of the financial market in the country.

Byrne et al., (2009) This works focused on the home health care and family decision making.
method of data screening datasets from house holders. game theoretic model, build models.
Within the sample size is 270. the study is evaluated that family members specialize
according to their comparative advantages in market production, caregiving, or other forms
of nonmarket production or whether siblings take turns providing informal care. If children
take turns care- giving,

Drake et al., 2022) The work in this paper to is focusing on sources of inertia in the
individual health insurance market. it describes the regulatory structure of the Health
Insurance Marketplaces and Covered California. the data used in the analyses and presents
descriptive evidence of inertia. it develops a model of health plan choice that separately
identifies distinct sources of inertia. the results and simulates the elimination of each of these
sources of inertia on the probability that households switch plans.

Kannadhasan & MBA,( 2009) Role of behavioural finance in investment decisions. This
study mainly focused to health insurance scheme, below poverty line households, CHIS,
coverage, health Insurance, health utilization, out-of-pocket expenses, RSBY the method
screened data sets BPL household. it is comparative cross-sectional survey. within the sample
size is 256. tools can be used for multivariate analysis. this study evaluated that study needed
for insurance schemes on risk protection, and govt redesign and closely monitor the scheme.

Liu, L., Li, Z., Sui, Y., & Shi, J. (2021). this study mainly focused theory on demand on
on health insurance, risk attitudes, and household financial behaviour. this study focused on
empirical analysis. they variable are used for regional social health insurance, participation
rate, social health insurance, the tools used for prohibit regression, heterogeneity analysis,
endogeneity analysis.

Ohri, 2022)The study mainly focused to Psychological Factors in the Decision-Making of

Investors in India. investors on psychological biases, behavioural finance, heuristics, investor
overconfidence, make decision making. the methods in this paper include the screening of
datasets from money market investors. the methods in this paper included investment in stock
market, anchoring bias, illusion of control, over confidence, gullibility etc, it can be evaluated
psychology does play an important role in investors behave while engaging money market’.

Reshmi et al., 2021) this study mainly focused on health insurance awareness and its uptake.
it focused on awareness or health insurance literacy, attitude such as readiness to buy health
insurance or decision making, uptake of health insurance, demand-side and supply-side
factors for awareness of health insurance, and awareness as a factor for uptake and re-
enrolment in health insurance. Databases such as MEDLINE (PubMed), Web of Science,
Scopus, 3ie impact evaluation repository and Social Science. they find healthcare utilisation
and financial protection.

parvathy P R studies 2022) Behavioural biases in Indian stock market; A Study with special
reference to cognitive and emotional biases of equity investors in Kerala. Behavioural biases
in Indian stock market; A Study with special reference to cognitive and emotional biases of
equity investors in Kerala. This study proves that behavioural biases influence individual
equity investors’ buying and selling patterns. This, in turn, has a considerable impact on the
Indian stock market too. Investors must be made aware of the biases they commit to
improving their performance, thereby increasing the growth and prosperity of the nation.
Tools used for the study were vector auto regression, percentage analysis, post hoc test.
ANOVA.

Sagtani et al., 2022) this study mainly focused on factors affecting health insurance.(Sum et
al., 2018)study aimed to assess factors associated with the utilization of health insurance
among the insured population in an urban district of Nepal. Methods: A cross-sectional
survey using face-to-face interviews was conducted in 224 households in the Bhaktapur
district of Nepal. The study identified a particular group of the population who were more
likely to utilize health insurance services, including the chronically ill and elderly. Health
insurance program in Nepal would benefit from strategies to increase population coverage in
health insurance, improve the quality of health services, and retain members in the program.

Shahraki & Ghaderi, (2019) The Impact of medical Insurances on out-of-pocket payments
among urban households in Iran: A Double-Sample selection Model. This study mainly
focused on medical insurance out pocket. health insurance, educational status, income.it is a
descriptive analytic study, sample size is 17809 urbans house hold. this study evaluated that
in equality in Out pocket payments among the households. monitoring the quality of care.

Suresh G, (2021) Impact of Financial Literacy and Behavioural Biases on Investment

Decision-making. In this study work focused on behavioural biases on investment decision
making. Financial literacy, framing effect, cognitive illusions, heuristics, herd mentality. the
method of paper includes screening of datasets collected from various investment
consultants, portfolio advisors. tools can be used for correlation co-efficient matrix. factor
analysis, chi square, testing hypothesis.it can be evaluated That irrational behaviour in
decision making. and high level of behavioural biases in investment Decision.

Sum et al., 2018) this paper work in focusing on decision making biases in insurance
purchasing. It follows heuristic biases based on representivens, availability, affect,
conformity effect, decision framing biases; mental accounting. The contributions of this
study to insurance purchase decision-making are two-folds. First, it contributes to improve
insurance companies understanding on their customers’ decision-making behaviours and
biases. Therefore, they can better market their products. Second, it contributes to improve
insurance buyers understanding on decision-making biases influencing their judgement when they
make decision under uncertainty

Wuppermann, A., & Winter, J. (2019). the work in paper in focusing on health insurance
plan choice and switching. this mainily focused on consumers may not have a sufficient level
of knowledge of insurance products. it will be understanding of how inter venation will affect
the supply of health insurance. result from sample survey (n=2791) the tools used for chi.
square test, crammers v test. for categorical data so recently result that consumer given the
opportunity will switch plan primarily.

Theoretical frame work

Grossman points out that demand for health services is derived from demand for health,
demand for health insurance is derived from demand for health services. In Besley (1991)
framework, demand for health, health services and health insurance all build on conventional
economic theory of demand. Following this approach, health is a commodity traded-off
against other goods (e.g. smoking) and, as such, individual demand for health can be elicited
through an analysis of tastes or preferences. Besley continues that individuals maximise their
utility within budget constraints, health being one of the many goods contributing to utility.
Better health is achieved by investing in goods that improve health, which in turn leads to
both a consumption gain (i.e. being healthy enables a range of activities to be achieved), and
an investment gain (i.e. better health increases lifetime earnings). In terms of demand for
health services, in addition to the influence of income, education, and health status, other
characteristics such as age, aversion to receiving health care, and the availability of health-
related information, will each influence demand for health services. However, many of these
factors are not easily observed. Conventional models of demand assume that individuals
maximise expected utility, within a budget constraint, and according to their preferences.
However, in the health sector these assumptions do not hold, as information is subject to
asymmetry. For individuals, uncertainty over the quantity and type of care required, and the
need to consult a third party who holds the necessary information (i.e. a physician),
significantly erodes their sovereignty over the consumption decision. This asymmetry is the
basis of the principal-agent relationship within health care markets. Not only is it difficult for
individuals to assess the quality of the good or health service before receiving it, which is
true of many products, but it is also difficult for them to assess its quality retrospectively.

Secondly, these risks must be largely independent of each other. If an event occurs in which
all insured individuals, or a significant proportion of them, simultaneously suffer an insured
loss, the scope for sharing risks is severely limited, and the insurance function may collapse.
Examples include earthquakes, tropical storms, epidemics, and major crop failures; most of
which are common in LICs.

The third condition is that the probability of an individual requiring medical treatment must
be significantly lower than one (i.e. not certain). For this reason, elderly patients often face
problems purchasing health insurance, as their probability of falling ill tends towards one.
Insurers face problems accurately assessing the first and third condition i.e. the likelihood of
an individual making a claim. Where the information held by the insured and the insurer is
asymmetrical, the health insurance market may unravel. Akerlof (1970) formalised this
phenomenon using the example of second-hand car markets, in which the seller holds more
accurate information than the buyer about the quality of a particular car. The potential buyer
cannot easily distinguish between good and bad cars and, as a result, prices move towards the
average quality of cars in the market. In response, owners of good quality cars remove theirs
from the market, leaving poorer quality cars to dominate. Prices fall further to reflect lower
average quality, pushing out more good quality cars, until only low quality cars are traded. In
health insurance markets, the problem is essentially the same, although it is the consumer
(patient), rather than the seller (insurer), that holds more accurate information, in this case
about the quality of their own health. If new customers provide biased information to the
insurer, in favour of good health, the actual number of claims and payouts will be higher than
predicted. To protect profits, the insurance agency adjusts premia upwards.

Research Gap

From the foregoing survey of literature on related areas, it is found that different studies have
been carried out by several researchers and institutions in financial decision-making, health
insurance and efficiency and behavioural finance at national and international levels. But
limited study has been conducted on the impact of psychological biases and financial
decision-making of health insurance among individuals. Similarly, there had been limited
studies on the mediating effect of behavioural bias on the relation between heuristic bias
status quo biases policy coverage. In this scenario, the researcher has made an endeavour to
fill the gap by studying the impact of psychological biases and financial decision-making of
health insurance.

Statement of the problem

After more than sixty years of independence, India could not achieve the desired level of
health indicators that could match the international level. There exists a huge disparity in
outcomes across the socioeconomic group. The disparity is psychological biases and
indifference in financial decision making. understanding how psychological biases influence
individual choice in selecting health insurance plans, well as examing the level of
indifference towards financial consideration in decision making process. Is crucial for
optimizing insurance uptake and ensuring adequate coverage.

Significance of the study

 Psychological biases can significantly impact financial decision -making regarding health
insurance among individuals. Biases such as heuristic bias, representative bias, availability,
affect, decision framing biases.

Understanding these biases is significant as it allows policy makers, insurers, and financial
advisors to design intervention and communication strategies that account for these biases,
individuals can make more informed decisions regarding their health insurance coverage
leading to better financial outcomes and improved overall well-being. additionally, research
in this area can contribute to the development of behavioral economics theories and inform
public policy related to health care and insurance markets.

Research questions

 Whether know the awareness of different health insurance scheme.

 What is the actual use age of health insurance policy. How do individual risk perceptions affect
the choice and uptake of health insurance plan in Kerala.
 How do psychological biases influence the decision-making process regarding health insurance
among individuals in Kerala.

Objectives of the study

 To examine awareness of different health insurance scheme. and actual use age of
health insurance policy in Kerala.
 To analysis individual risk perceptions affect the choice. And uptake of health
insurance plan in Kerala.
 To Analysis the impact of psychological biases, influence the decision-making
process regarding health insurance among individuals.

Methodology of the study:

1. SOURCES OF DATA
 Primary data:
Collected through surveys and interviews/ focus groups conducted specifically
for this study.
 Secondary data:
 Supplementary information from existing research, government reports, and
health insurance data base, if available.

PROPOSED SAMPLING DESIGN

Population selection: define the target population which could be individuals in Kerala.
aged 18- and above who have policy holders and non-policy holders.

Obtain sampling frame: obtain a list of individuals with health insurance from insurance
companies. health care facilities or government records or those who have private policy
health insurance and households etc.

Sampling procedure

The adopted sampling procedure of the study is random or representative sample method.
The state of centeral zone Kerala. targeted population is government and non-government
employers.

Research Instrument
Questionnaire, and google form shall be used for the purpose of collecting primary data for
the study.

1. PROPOSED VARIABLES USED FOR THE STUDY

Extraneous variable: These factors can include background differences, awareness, and
other characteristics that are unique to each person. It is related to other variables is too
situational variables. The environment may impact how each participant responds and
behave.
Intervening variables: Relationship between independent and dependent variable for e.g.
insurance companies, health care facilities, govt records
Behavioural biases
Biases
‘A bias is a systematic error in the way we process information around the world around us’
so the psychological bias is equal to the heuristic biases, There are different biases considered;
Representativeness bias, availability biases ,decision framing biases, mental accounting.
Heuristics: The word heuristic refers to the process by which people find things out for
themselves, usually by trial & error. Trial & error often leads people to develop rules of
thumb, but this process even leads to other errors. The important heuristic-driven biases and
cognitive errors that impair judgment are Representativeness.

Heuristic biases

 Representativeness: It refers to the tendency to form judgments based on

stereotypes. Illusion of control bias: The tendency of human beings to believe that
they can control or at least influence out comes.(Pompian, 2011)
 Confirmation bias: Selective perception that emphasizes ideas. that confirm our
beliefs, while devaluing whether contradicts our beliefs.
 Framing bias: Tendency of decision makers to respond various situations differently
based on the context in which a choice is presented.
 Conservatism bias: Conservatism bias is related to anchoring and happens when we
see an investor clinging to an initial opinion about an investment without properly
incorporating new information.(Pompian, 2011)

Frame dependence
A frame is a description. Frame dependence means that people make decisions that are
influenced by the way the information is presented. Frame dependence manifests itself in the
way that people form attitudes toward gains and losses. Many people make one decision if a
problem is framed in terms of losses but behave differently if the same problem is framed in
terms of gains. An important reason for this behaviour is confirmation bias. It is a tendency to
search for interpret, favour, and recall information in way that confirms supports one’s prior
beliefs or values.

Confirmation bias: Confirmation bias was developed by peter Watson in 1960. it refers to
favour’s information that confirms your previously existing beliefs.

Regret aversion bias: It refers to association with poor decision making.(Pompian, 2011)

Status quo bias: People facing an array of choice options to elect whether option ratifies or
extends the existing condition.

Scope of the study

Behavioural finance is a new paradigm and still exploring one. There are several variables
and biases are identified by different researchers across the world. Hence the scope of the
study is vast, but this study is limited to explore the impact of social, financial, and
psychological factors on investment behaviour of health insurance among individuals. This
study is limited to the individuals only from Thrissur, Palakkad, Idukki, Kottayam,
Ernakulam district.

Chapter Scheme
The report of the works presented in five chapters as follows:

Chapter One Introduction

This Chapter deals with introduction, statement of the problem, significance of the study,
scope of the study, objectives of the study, methodology and database, operational definition
of concepts, variables used for the study, tools for data analysis, limitation of the study and
chapter scheme.

Chapter Two Review of Literature

This chapter deals with the review of literature of the related area.

Chapter Three Theoretical Framework

This chapter devoted to explaining the theoretical overview of behavioural biases, investment
particularly financial behaviour. This chapter gives detailed description of the impact of
psychological biases and financial decision making of health insurance among individuals.

Chapter Four Data Analysis and Interpretations

This chapter deals with analysis and interpretations of the collected data.

Chapter Five Summary, Findings, Conclusion and Suggestions

This chapter covers the summary of work undertaken, important findings, conclusion and
suggestion of the research work. Thereafter the scope for further research is also provide.

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