Management Science and Engineering Department's Lecture

Theme：When More is Less: The Effect of Add-on Insurance on the Consumption of Professional Services

Speaker：Hongfei Li（School of Business, University of Connecticut）

Time：2019-12-25 12:00

Address：Room 1008, Mingde Business Building

Language：English/Chinese

Abstract：

The perceived risk of professional services (e.g., education and surgeries) is typically much higher than that of physical goods, due to the highly consequential nature of these services and the large information asymmetries between customers and service providers. Therefore, risk management (e.g., reducing the risks of prospective customers) is of the essence to professional services. In this paper, we study how the introduction of a risk-reduction strategy affects the demand for professional services in online platforms. In doing so, we leverage a natural experiment on an online platform for cosmetic procedures, which started to offer complications insurance, i.e., a type of add-on insurance covering the potential cost of surgical malpractice or complications, for a subset of cosmetic procedures in 2016. Our empirical study shows that this risk-reduction strategy has asymmetric effects on low-risk and high-risk procedures. Specifically, the introduction of insurance increases the sales of low-risk procedures, but has no significant effect on the sales of high-risk procedures. More importantly, the insurance has a negative spillover effect on uninsured competitors, regardless of their risk levels. The negative spillover effect of insurance on high-risk procedures is rather intriguing because it hurts the sales of uninsured procedures without increasing the sales of their insured competitors, and thus cannot be explained by demand cannibalization, the common explanation behind negative spillover effects. We discuss a possible explanation in the paper. Our findings have important implications for platforms to design and evaluate their risk-reduction strategies.

Short biography：

Hongfei Li is a fifth-year Ph.D. student from Department of Operations and Information Management of School of Business, at the University of Connecticut. He expects to graduate by May 2020 and become an assistant professor in Department of Decision Sciences and Managerial Economics of School of Business at the Chinese University of Hong Kong in August 2020. His current research focuses on three main streams: business analytics in emerging online platforms, applications of artificial intelligence and machine learning, and statistical methodology. He has one publication at ACM Transaction in MIS. He has one paper under revision for the second-round review at Information Systems Research and one paper under reject and resubmit at Organization Science. He also has one paper under first-round review at Information Systems Research and one paper under the first-round review at MIS Quarterly. During his Ph.D. career, he has taught two courses: operations management and business information systems. He is interested in teaching technical courses related to mathematics, statistics, econometrics, and computer language in business application, such as business analytics, web analytics, data science, machine learning, business statistics, econometrics, and database systems.