A Fresh Look at Prevention for Health Risks
11 Pages Posted: 24 Apr 2020
Date Written: March 31, 2020
We analyze how risk preferences affect optimal prevention for health risks using Kihlstrom and Mirman's (1974) transformation function approach. This ensures consistency of ordinal preferences. The effect of comparative risk aversion depends on a probability threshold while the effect of comparative downside risk aversion is always negative. This corroborates the role of downside risk aversion as an important determinant of optimal prevention for health risks but renders fear of sickness insignificant. We also point out several unique properties of prevention for health risks compared to financial risks.
Keywords: Health Risks, Prevention, Risk Aversion, Downside Risk Aversion, Bi-variate Utility Function
JEL Classification: D11, D81, I12
Suggested Citation: Suggested Citation