Title: How do Humans Interact with Algorithms? Experimental Evidence from Health Insurance
Abstract: Algorithms are increasingly available to help consumers make purchasing decisions. How does algorithmic advice affect human decisions and what types of consumers are likely to use such advice? We examine these questions in the context of a randomized, controlled trial in which we exposed consumers choosing prescription drug insurance plans to personalized information, either with or without algorithmic expert recommendations, relative to offering no personalized information. We develop an empirical model of consumer choice to examine the mechanisms by which expert recommendations affect choices. Our experimental data are consistent with a version of the model in which consumers have noisy beliefs not only about product features, but also about the parameters of their utility function. Expert advice, in turn, changes how consumers value product features by changing their beliefs about their utility function parameters. Further, there is substantial selection into who demands expert advice. Consumers who we predict would have responded more to algorithmic advice were less likely to demand it.
About This Series: The Robert A. Hedges Research Seminar Series is hosted by the Department of Risk, Insurance, and Healthcare Management in the Fox School of Business. The seminar series comprises invited lectures from academics experts around the world who present research in insurance, risk management, and actuarial science