Motivated Health Risk Denial and Preventative Health Care Investments

Schwardmann, Peter (2017): Motivated Health Risk Denial and Preventative Health Care Investments. Collaborative Research Center Transregio 190, Discussion Paper No. 33

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 and 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
• Keywords: health risk denial; optimal expectations; motivated beliefs; disease prevention; self-protection
• Faculties: Economics > Collaborative Research Center Transregio "Rationality and Competition"
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: D03, I15, I11, I18
• Language: English