Heterogeneity in State‐Dependent Utility: Evidence from Strategic Surveys
15 Pages Posted: 26 Feb 2016
Date Written: April 2016
A standard result of life‐cycle models under uncertainty is that optimizing individuals equate the expected marginal utility of consumption across states of the world if insurance is available at actuarially fair rates. A small empirical literature has suggested that the marginal utility of consumption is lower in less healthy states. We use a novel survey‐based measure to document significant heterogeneity in health‐state dependence across individuals largely orthogonal to standard controls. We further show that individuals value unhealthy states of the world more when facing work‐limiting disabilities than when facing disabilities requiring long‐term care, and when facing physical rather than mental disabilities.
JEL Classification: D12, I10
Suggested Citation: Suggested Citation