Demand for Health Insurance Part 1 Purpose of Insurance

Describes the motivation for why a consumer would want to be insured. This motivation is rooted in risk aversion and emerges from diminishing marginal utility of consumption. Our healthy richer selves do not value increments to consumption as much as our poorer sicker selves--so they look for ways to transfer resources from the healthy state to the sick state. People are polarized about the mechanisms of modern insurance because it does involve moving funds laterally from groups of healthy people to groups of sick people--even though the same people at some time are healthy and some time are sick. Myopia makes some mistakenly believe they will never be sick and wanting to benefit from an insurance contract.