Bounded rationality in credit consumers’ payment protection insurance decisions: the effect of relative cost and level of cover

Ranyard, Rob and McHugh, S. ORCID: 0000-0001-6357-2979 (2012) Bounded rationality in credit consumers’ payment protection insurance decisions: the effect of relative cost and level of cover. Journal of Risk research, 15 (8). pp. 937-950. ISSN 1366-9877

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Official URL: http://www.tandfonline.com/toc/rjrr20/current

Abstract

A previous study found that credit consumers’ decisions to purchase payment protection insurance (PPI) were surprising insensitive to changes in cost and level of cover. This was investigated further in a randomized-groups experiment in which these two factors and the cost of credit alternatives without PPI were systematically manipulated. High street bank customers (N = 215) were presented with realistic PPI purchase scenarios and a questionnaire assessing their willingness to pay (WTP) for PPI and perceptions of its usefulness. It was found that: (1) WTP and PPI decisions were insensitive to relatively large changes in level of cover; (2) the perceived usefulness of Premium and Basic levels of cover were not significantly different, although their usefulness was a significant predictor of PPI decisions and (3) sensitivity of PPI decisions to changes in cost was dependent on the cost of credit without PPI. The first two findings are explained in terms of simplified mental representations and the evaluability of insurance cover. It is concluded that further research on the effects of the relative cost of insurance is needed.

Item Type: Article
Uncontrolled Keywords: consumer credit, insurance, decision-making, risk, bounded rationality
Divisions: School of Education and Psychology > Psychology
Depositing User: Tracey Gill
Date Deposited: 09 Nov 2017 11:47
Last Modified: 06 Mar 2018 15:45
Identification Number: 10.1080/13669877.2012.686050
URI: http://ubir.bolton.ac.uk/id/eprint/1214

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