Optimal Revelation of Life-Changing Information

39 Pages Posted: 7 Jul 2016

See all articles by Nikolaus Schweizer

Nikolaus Schweizer

Tilburg School of Economics and Management

Nora Szech

Karlsruhe Institute of Technology

Date Written: June 13, 2016

Abstract

Information about the future may be instrumentally useful, yet scary. For example, many patients shy away from precise genetic tests about their dispositions for severe diseases. They are afraid that a bad test result could render them desperate due to anticipatory feelings. We show that partially revealing tests are typically optimal when anticipatory utility interacts with an instrumental need for information. The same result emerges when patients rely on probability weighting. Optimal tests provide only two signals, which renders them easily implementable. While the good signal is typically precise, the bad one remains coarse. This way, patients have a substantial chance to learn that they are free of the genetic risk in question. Yet even if the test outcome is bad, they do not end in a situation of no hope.

Keywords: test design, revelation of information, design of beliefs, medical tests, anticipatory utility, Huntington’s Disease

JEL Classification: D810, D820

Suggested Citation

Schweizer, Nikolaus and Szech, Nora, Optimal Revelation of Life-Changing Information (June 13, 2016). CESifo Working Paper Series No. 5941. Available at SSRN: https://ssrn.com/abstract=2805842

Nikolaus Schweizer

Tilburg School of Economics and Management ( email )

PO Box 90153
Tilburg, 5000 LE Ti
Netherlands

Nora Szech (Contact Author)

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

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