IDEAS home Printed from https://ideas.repec.org/a/spr/eujhec/v14y2013i6p1003-1013.html
   My bibliography  Save this article

Long-term health investment when people underestimate their adaptation to old age-related health problems

Author

Listed:
  • Octave Jokung
  • Serge Macé

Abstract

This paper explores in a two-period model the economic implications of people’s tendency to underestimate their ability to adapt to age-related health problems. We model this misperception by assuming that the individual underestimates his future subjective health. Under standard assumptions, we show that, when people allocate their resources during their youth between present consumption, savings, and health investment, they invest more in health as long as the magnitude of the cross-marginal utility of health and consumption is not too negative. Copyright Springer-Verlag Berlin Heidelberg 2013

Suggested Citation

  • Octave Jokung & Serge Macé, 2013. "Long-term health investment when people underestimate their adaptation to old age-related health problems," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 14(6), pages 1003-1013, December.
    • Handle: RePEc:spr:eujhec:v:14:y:2013:i:6:p:1003-1013
    DOI: 10.1007/s10198-012-0449-9
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10198-012-0449-9
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10198-012-0449-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. George Loewenstein & Ted O'Donoghue & Matthew Rabin, 2003. "Projection Bias in Predicting Future Utility," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(4), pages 1209-1248.
    2. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1133-1165.
    3. Evans, William N & Viscusi, W Kip, 1991. "Estimation of State-Dependent Utility Functions Using Survey Data," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 94-104, February.
    4. Jody Overland & Christopher D. Carroll & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, vol. 90(3), pages 341-355, June.
    5. Amy Finkelstein & Erzo F. P. Luttmer & Matthew J. Notowidigdo, 2009. "Approaches to Estimating the Health State Dependence of the Utility Function," American Economic Review, American Economic Association, vol. 99(2), pages 116-121, May.
    6. Amy Finkelstein & Erzo F. P. Luttmer & Matthew J. Notowidigdo, 2013. "What Good Is Wealth Without Health? The Effect Of Health On The Marginal Utility Of Consumption," Journal of the European Economic Association, European Economic Association, vol. 11, pages 221-258, January.
    7. Blanchflower, David G. & Oswald, Andrew J., 2008. "Is well-being U-shaped over the life cycle?," Social Science & Medicine, Elsevier, vol. 66(8), pages 1733-1749, April.
    8. Lillard, Lee A & Weiss, Yoram, 1997. "Uncertain Health and Survival: Effects on End-of-Life Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(2), pages 254-268, April.
    9. Sloan, Frank A. & Kip Viscusi, W. & Chesson, Harrell W. & Conover, Christopher J. & Whetten-Goldstein, Kathryn, 1998. "Alternative approaches to valuing intangible health losses: the evidence for multiple sclerosis1," Journal of Health Economics, Elsevier, vol. 17(4), pages 475-497, August.
    10. Wu, Stephen, 2001. "Adapting to heart conditions: a test of the hedonic treadmill," Journal of Health Economics, Elsevier, vol. 20(4), pages 495-507, July.
    11. Damschroder, Laura J. & Zikmund-Fisher, Brian J. & Ubel, Peter A., 2005. "The impact of considering adaptation in health state valuation," Social Science & Medicine, Elsevier, vol. 61(2), pages 267-277, July.
    12. Viscusi, W Kip & Evans, William N, 1990. "Utility Functions That Depend on Health Status: Estimates and Economic Implications," American Economic Review, American Economic Association, vol. 80(3), pages 353-374, June.
    13. Jonathan Baron & David A. Asch & Angela Fagerlin & Christopher Jepson & George Loewenstein & Jason Riis & Margaret G. Stineman & Peter A. Ubel, 2003. "Effect of Assessment Method on the Discrepancy between Judgments of Health Disorders People have and do not have: A Web Study," Medical Decision Making, , vol. 23(5), pages 422-434, September.
    14. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    15. Ricardo Pagán-Rodríguez, 2010. "Onset of disability and life satisfaction: evidence from the German Socio-Economic Panel," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 11(5), pages 471-485, October.
    16. Carbone, Jared C. & Kverndokk, Snorre & Rogeberg, Ole Jorgen, 2005. "Smoking, health, risk, and perception," Journal of Health Economics, Elsevier, vol. 24(4), pages 631-653, July.
    17. Ross, Catherine E. & Mirowsky, John, 2008. "Age and the balance of emotions," Social Science & Medicine, Elsevier, vol. 66(12), pages 2391-2400, June.
    18. Edwards, Ryan D, 2008. "Health Risk and Portfolio Choice," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 472-485.
    19. Jon Gjerde & Sverre Grepperud & Snorre Kverndokk, 2005. "On adaptation and the demand for health," Applied Economics, Taylor & Francis Journals, vol. 37(11), pages 1283-1301.
    20. Winter, Laraine & Parker, Barbara, 2007. "Current health and preferences for life-prolonging treatments: An application of prospect theory to end-of-life decision making," Social Science & Medicine, Elsevier, vol. 65(8), pages 1695-1707, October.
    21. Norman F. Boyd & Heather J. Sutherland & Karen Z. Heasman & David L. Tritchler & Bernard J. Cummings, 1990. "Whose Utilities for Decision Analysis?," Medical Decision Making, , vol. 10(1), pages 58-67, February.
    22. Peter A. Ubel & George Loewenstein & John Hershey & Jonathan Baron & Tara Mohr & David A. Asch & Christopher Jepson, 2001. "Do Nonpatients Underestimate the Quality of Life Associated with Chronic Health Conditions because of a Focusing Illusion?," Medical Decision Making, , vol. 21(3), pages 190-199, May.
    23. Albrecht, Gary L. & Devlieger, Patrick J., 1999. "The disability paradox: high quality of life against all odds," Social Science & Medicine, Elsevier, vol. 48(8), pages 977-988, April.
    24. Groot, Wim, 2000. "Adaptation and scale of reference bias in self-assessments of quality of life," Journal of Health Economics, Elsevier, vol. 19(3), pages 403-420, May.
    25. Macé, Serge & Le Lec, Fabrice, 2011. "On fatalistic long-term health behavior," Journal of Economic Psychology, Elsevier, vol. 32(3), pages 434-439, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gregor Dorfleitner & Felix Rößle, 2018. "The financial performance of the health care industry: a global, regional and industry specific empirical investigation," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 19(4), pages 585-594, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Schünemann, Johannes & Strulik, Holger & Trimborn, Timo, 2017. "Going from bad to worse: Adaptation to poor health health spending, longevity, and the value of life," Journal of Economic Behavior & Organization, Elsevier, vol. 140(C), pages 130-146.
    2. Jimin Hong & Kyungsun Kim, 2021. "Self-insurance and saving under a two-argument utility framework," Journal of Economics, Springer, vol. 134(1), pages 73-94, September.
    3. Xiaoyu Wang & Chunan Wang, 2020. "How Does Health Status Affect Marginal Utility of Consumption? Evidence from China," IJERPH, MDPI, vol. 17(7), pages 1-20, March.
    4. Padmaja Ayyagari & Daifeng He, 2017. "The Role of Medical Expenditure Risk in Portfolio Allocation Decisions," Health Economics, John Wiley & Sons, Ltd., vol. 26(11), pages 1447-1458, November.
    5. Attema, Arthur E. & l’Haridon, Olivier & van de Kuilen, Gijs, 2019. "Measuring multivariate risk preferences in the health domain," Journal of Health Economics, Elsevier, vol. 64(C), pages 15-24.
    6. Fadlon, Itzik & Nielsen, Torben Heien, 2019. "Household labor supply and the gains from social insurance," Journal of Public Economics, Elsevier, vol. 171(C), pages 18-28.
    7. Kools, Lieke & Knoef, Marike, 2019. "Health and consumption preferences; estimating the health state dependence of utility using equivalence scales," European Economic Review, Elsevier, vol. 113(C), pages 46-62.
    8. Amy Finkelstein & Erzo F. P. Luttmer & Matthew J. Notowidigdo, 2009. "Approaches to Estimating the Health State Dependence of the Utility Function," American Economic Review, American Economic Association, vol. 99(2), pages 116-121, May.
    9. Harris, Matthew & Kohn, Jennifer, 2015. "Reference dependent utility from health and the demand for medical care," MPRA Paper 61926, University Library of Munich, Germany.
    10. Levy, Moshe & Nir, Adi Rizansky, 2012. "The utility of health and wealth," Journal of Health Economics, Elsevier, vol. 31(2), pages 379-392.
    11. Paul Dolan & Daniel Kahneman, 2008. "Interpretations Of Utility And Their Implications For The Valuation Of Health," Economic Journal, Royal Economic Society, vol. 118(525), pages 215-234, January.
    12. Shelby Gerking & Wiktor Adamowicz & Mark Dickie & Marcella Veronesi, 2017. "Baseline risk and marginal willingness to pay for health risk reduction," Journal of Risk and Uncertainty, Springer, vol. 55(2), pages 177-202, December.
    13. Dorte Gyrd‐Hansen, 2017. "A Stated Preference Approach to Assess whether Health Status Impacts on Marginal Utility of Consumption," Health Economics, John Wiley & Sons, Ltd., vol. 26(10), pages 1224-1233, October.
    14. Seog, S. Hun & Hong, Jimin, 2024. "Moral hazard in loss reduction and state-dependent utility," Insurance: Mathematics and Economics, Elsevier, vol. 115(C), pages 151-168.
    15. Lee, Siha, 2020. "Household responses to disability shocks: Spousal labor supply, caregiving, and disability insurance," CLEF Working Paper Series 21, Canadian Labour Economics Forum (CLEF), University of Waterloo.
    16. Siha Lee, 2023. "Spousal Labor Supply, Caregiving, and the Value of Disability Insurance," Department of Economics Working Papers 2020-08, McMaster University.
    17. Daniel Bauer & Darius Lakdawalla & Julian Reif, 2018. "Mortality Risk, Insurance, and the Value of Life," NBER Working Papers 25055, National Bureau of Economic Research, Inc.
    18. Rachel Kreier & Bhaswati Sengupta, 2015. "Income, Health, and the Value of Preserving Options," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(4), pages 431-448, December.
    19. W. Kip Viscusi, 2019. "Utility functions for mild and severe health risks," Journal of Risk and Uncertainty, Springer, vol. 58(2), pages 143-166, June.
    20. Ryan D. Edwards, 2010. "Optimal portfolio choice when utility depends on health," International Journal of Economic Theory, The International Society for Economic Theory, vol. 6(2), pages 205-225, June.

    More about this item

    Keywords

    Health investment; Aging; Hedonic adaptation; I12; D91;
    All these keywords.

    JEL classification:

    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:eujhec:v:14:y:2013:i:6:p:1003-1013. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.