Take-Up for Genetic Tests and Ambiguity

Posted: 4 Jun 2014

See all articles by Michael Hoy

Michael Hoy

University of Guelph - Department of Economics

Richard Peter

University of Iowa

Andreas Richter

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management)

Date Written: June 3, 2014

Abstract

Under the expected utility hypothesis a costless genetic test has, at worst, zero private value. This happens if it does not affect optimal decisions. If the genetic test facilitates better decision-making for at least one possible test outcome, then it has positive private value. This theoretical result seems to contradict the fact that empirically observed take-up rates for genetic tests are surprisingly low. We demonstrate that if individuals display ambiguity aversion, a costless genetic test that does not affect optimal decisions is never taken. Furthermore, there is a trade-off between aversion against uncertainty of test results and utility gains from better decision-making if optimal decisions depend on the level of information. The reason is that, from an ex-ante view, a genetic test introduces uncertainty of probabilities which diminishes the value of information to an ambiguity-averse decision-maker. Ambiguity aversion regarding test results thus provides an explanation for low take-up rates for genetic tests.

Keywords: Non-expected utility, ambiguity, genetic tests, value of information

JEL Classification: D81, D83, I12

Suggested Citation

Hoy, Michael and Peter, Richard and Richter, Andreas, Take-Up for Genetic Tests and Ambiguity (June 3, 2014). Journal of Risk and Uncertainty, Vol. 48, No. 2, 2014, Available at SSRN: https://ssrn.com/abstract=2445417

Michael Hoy

University of Guelph - Department of Economics ( email )

50 Stone Road East
Guelph, Ontario N1G 2W1
Canada
519-824-4120, ext. 52169 (Phone)
519-763-8497 (Fax)

Richard Peter (Contact Author)

University of Iowa ( email )

341 Schaeffer Hall
Iowa City, IA 52242-1097
United States

Andreas Richter

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Schackstra├če 4
Munich, 80539
Germany

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