Health Values, Preference Inconsistency, and Insurance Demand
University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - Institute of Economics; CESifo (Center for Economic Studies and Ifo Institute)
CESifo Working Paper Series No. 1634
Several empirical studies provide evidence that their actual health state affects people's attitudes towards health and medical care in hypothetical health states. In the tradition of behavioural economics this paper considers the actual health state as a point of reference and builds a model for studying the implications of this phenomenon on health insurance and on demand for medical care. It considers the insurance demand of different types of agents: naive individuals, individuals who are able to commit to medical care demand and sophisticated individuals. Furthermore, it raises the question of whether inconsistency of preferences reinforces or tones down moral hazard problems.
Number of Pages in PDF File: 28
Keywords: health insurance, medical care, health state, behavioural economics, prospect theory, time inconsistency
JEL Classification: I11, G22, D82, D91
Date posted: January 18, 2006