Motivated health risk denial and preventative health care investments

Schwardmann, Peter (May 2017): Motivated health risk denial and preventative health care investments. Discussion Papers in Economics 2017-13

Abstract

People deny health risks, invest too little in disease prevention, and are highly sensitive to the price of preventative health care, especially in developing countries. Moreover, private sector R&D spending on developing-country diseases is almost non-existent. To explain these empirical observations, I propose a model of motivated belief formation, in which an agent’s decision to engage in health risk denial balances the psychological benefits of reduced anxiety with the physical cost of underprevention. I use the model to study firms’ price-setting behaviour and incentive to innovate. I also show that tax-funded prevention subsidies are welfare enhancing.

• Item Type: Paper (Discussion Paper)
• Keywords: health risk denial, optimal expectations, motivated beliefs, disease prevention, self-protection
• Faculties: Economics > Munich Discussion Papers in Economics > Micro-Economics; Economics > Munich Discussion Papers in Economics > Behavioral Economics
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: D03, I15, I11, I18
• Language: English

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