Huang R.J.Muermann A.Tzeng L.Y.2019-07-222019-07-22201600224367https://scholars.lib.ntu.edu.tw/handle/123456789/414415We examine insurance markets with two-dimensional asymmetric information on risk type and on preferences related to regret. In contrast to Rothschild and Stiglitz (), the equilibrium can be efficient; that is, it can coincide with the equilibrium under full information. Furthermore, we show that pooling, semipooling, and separating equilibria can exist. Specifically, there exist separating equilibria that predict a positive correlation between the level of insurance coverage and risk type, as in the standard economic models of adverse selection, but there also exist separating equilibria that predict a negative correlation between the level of insurance coverage and risk type. Since optimal choice of regretful customers depends on foregone alternatives, the equilibrium includes a contract that is offered but not purchased. ? American Risk and Insurance Association.journal article10.1111/jori.120962-s2.0-84958163537https://www.scopus.com/inward/record.uri?eid=2-s2.0-84958163537&doi=10.1111%2fjori.12096&partnerID=40&md5=97941b2413d8ec31ed987b390ac0644d