Effect Of The Cognitive Biases On Insurance Behavior Of New Rural Cooperative Medical System

The New Rural Cooperative Medical System (NCMS) plays an important role not only in enhancing the ability of farmers to resist fatal disease but also in promoting rural economic development and social stability. The voluntary principle of NCMS may cause adverse selection. The classical theory of asymmetric information assumes that applicant has information advantage, which does not consider cognitive biases of risk. It can not effectively explain the phenomenon of information asymmetry in NCMS market. This study attempts to analyze the behavior of participation in consideration of cognitive biases of risk, which in order to reflect the influence of cognitive biases in NCMS market.This paper is divided into 5 parts. The first part is the introduction. The second part is the related concepts and theoretical basis. The third part introduces cognitive biases coefficient r of risk to the classical R-S model of the adverse selection. The study shows that when the cognitive biases coefficient of low risk group is higher than a critical value, and at the same time the cognitive biases coefficient of high risk group is lower than a critical value, there will be a positive selection. Based on the above results of the theoretical analysis, the forth part explains the cognitive biases of risk and its influence on the NCMS according to the national data of CHARLS (2011). By constructing a logit model, it reviews the existence of significant adverse selection in rural residents. Mainly it reflectes that there is a positive correlation between the illness last month and whether insured as well as whether to purchase additional insurance. In addition, gender, marital status, chronic disease condition and physical examination have a significant influence on the insure behavior. Cognitive biases of risk has a significant impact on the insure behavior. As to people's perception of health risk and their real health degree, the greater the degree of deviation is, the less willingness they have to participate in NCMS. Cognitive biases of risk reduce the degree of adverse selection, which proves that the cognitive biases have modified effect on the classical risk model. The indirect inspection of insure behavior illustrates the mechanism of adverse selection:People of higher risks have less cognitive biases of risk and their health risk perceptions are more rational. People of less cognitive biases are more inclined to participate in the NCMS, thus showing the adverse selection that people of higher risk are more willing to insure. The last part proposes suggestions of perfecting NCMS market and improving the efficiency of resource allocation according to the empirical results.