Each will provide eight 1-page summaries of articles found in the WSJ during the semester (staple or bind the articles with the papers, not just the internet links). The eight articles should cover each topic below. The summary should include the “who, what, when, and why” the article is important to investors in the financial markets. (i.e. who is involved, what is occurring, when the major issue or any impact expected occur or when it occurred, and why it is important)? For example: Stocks – can be an article on an individual stock or the stock market in general. Banks – can be an article on an individual bank or the banking industry as a whole. Topics covered (8):
- Interest Rates and/or the Federal Reserve
- Stocks
- Bonds
- Mutual Funds
- Banks
- Mortgages and/or Real Estate
- Insurance and/or Pension Funds
- Futures Markets
Solution: Article Review
The article is intended to educate the consumers to buy insurance smartly. It shows that the consumers usually do not invest wisely on their health insurances for the reasons that they do not understand questions like uncertainty, risks, loss, and numeracy. However, the main reason is found to be in the presentation of these insurances. The author shows that through learning the biases that lead to wrong decisions, consumers can better decide on insurance plans. One major bias recognized in this article is that of deductibles. Research has shown that people tend to select a plan with lower deductibles in place of the one with higher deductible and lower premiums; which is a better plan. One way to assess which option is better is to calculate the maximum annual cost for the worst-case scenario for each of the plans and select the lower one. Furthermore, the option with the lower premium and the higher deductible is preferable. These mistakes are usually made because of the lack of understanding of the insurance features.
Another major bias noted, is the labeling of the insurance plans. The researchers have raised the questions about the plans which show their plan usage through their labels. The companies and insurance plans for easing the understanding of their consumers label their plans as Gold, Platinum and Bronze based on their usage (high, medium, and lower). The researchers have found that even with defined labels, the consumers tend to choose the wrong plan for themselves. It is attributed to the fact that the consumers tend to believe that the gold plan will offer higher quality, and bronze will offer lower quality medical service. Thus, assuming this, the consumers fail to choose the right plan.
For solving this problem, consumers should look for plans which offer the optimal deductibles. They need to assess how much they can afford to lose. Instead of looking out for higher premiums and lower deductibles, a manageable deductible with lower premium should be preferred. Secondly, the consumers should assess their expected need for the insurance. It varies from person to person. Thus, choosing the plan as per one’s own need and not paying for something that you would probably not need would be the better option (Benartzi and Bhargava).
Work Cited
Benartzi, Shlomo and Saurabh Bhargava. “Common Errors When Buying Insurance.” The Wall Street Journal. The Wall Street Journal, 11 February 2018. Web. 14 February 2018. https://www.wsj.com/articles/common-errors-when-buying-insurance-1518405060.
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