Risk Perception, Learning and Willingness to Pay to Reduce Heart Disease Risks

Abstract

The paper investigates the validity of individuals’ perceptions of heart disease risks, and examines how information and risk perceptions affect marginal willingness to pay (MWTP) to reduce risk, using data from a stated preference survey. Results indicate that risk perceptions individuals held before receiving risk information are plausibly related to objective risk factors and reflect individual-specific information not found in aggregate measures of objective risk. After receiving information, individuals’ updates of prior risk assessments are broadly consistent with Bayesian learning. Perceived heart disease risks thus satisfy construct validity and provide a valid basis for inferring MWTP to reduce risk. Estimating MWTP based on objective rather than subjective risks causes misleading inferences about benefits of risk reduction. An empirical case study shows that benefits are 36% to 62% higher when estimated using objective rather than subjective risks, showing the importance of employing risk perception information to improve validity of benefit measures.

Keywords: risk perception, willingness to pay, subjective probability, information, Bayesian, heart disease

JEL Classification: D61, I12, I38, J13, Q51, Q58