48 Pages Posted: 20 Sep 2011 Last revised: 1 Nov 2012
Date Written: November 01, 2012
This paper uses a model of reference-dependent preferences proposed by Koszegi and Rabin (2009) to derive the value of medical information when a decision-maker is loss averse over changes in beliefs. This allows to model the anticipation of potential disappointment upon receiving bad news about one's health status. The information's value in terms of improved subsequent decision-making with regard to a treatment decision is then amended by the anticipated emotional impact of information. It is shown that this emotional impact changes when information is instrumental, i.e. is affecting the decision about a subsequent action. The questions whether information is desirable from a decision-making or from an emotional point of view can thus not be separated. The model is applied to a patient's choice problem to undergo medical screening. The availability of effective cure and the timing of testing are predicted to be significant determinants of test uptake. This is in line with empirical research concerning patients' motives to decline testing.
Keywords: Information Acquisition, Reference Dependence, Disappointment Aversion, Medical Diagnosis
JEL Classification: D81, D83, I18
Suggested Citation: Suggested Citation