Health Investments Under Risk And Ambiguity
AbstractThis paper discusses how a decision maker should deal with uncertainty, both in the sense of a well-known probability distribution of different outcomes and as a situation where also the probability distribution is unknown. A simple baseline model is used throughout the paper, where the decision maker can invest in order to decrease the health risk. Since the investment is risky, the question concerns how much to invest. We derive and compare the optimal investment level for a number of different decision rules: a best guess rule, a maximin rule, an expected value rule, an expected utility rule, and three different rules that beyond risk aversion also reflect ambiguity aversion. Finally, these decision rules are evaluated more broadly.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 443.
Length: 42 pages
Date of creation: 04 May 2010
Date of revision:
Contact details of provider:
Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
More information through EDIRC
Investment under uncertainty; risk aversion; ambiguity aversion;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-15 (All new papers)
- NEP-HEA-2010-05-15 (Health Economics)
- NEP-LTV-2010-05-15 (Unemployment, Inequality & Poverty)
- NEP-UPT-2010-05-15 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- TREICH Nicolas, 2008.
"The value of a Statistical Life under Ambiguity Aversion,"
LERNA Working Papers
08.05.249, LERNA, University of Toulouse.
- Treich, Nicolas, 2010. "The value of a statistical life under ambiguity aversion," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 15-26, January.
- Nicolas Treich, 2008. "The Value of a Statistical Life under Ambiguity Aversion," CESifo Working Paper Series 2291, CESifo Group Munich.
- DREZE, Jacques H. & MODIGLIANI, Franco, .
"Cosumption decisions under uncertainty,"
CORE Discussion Papers RP
-119, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- repec:hal:cesptp:halshs-00174539 is not listed on IDEAS
- Al-Najjar, Nabil I. & Weinstein, Jonathan, 2009. "Rejoinder: The “Ambiguity Aversion Literature: A Critical Assessment”," Economics and Philosophy, Cambridge University Press, vol. 25(03), pages 357-369, November.
- Mukerji, S. & Tallon, J.-M., 1999.
"Ambiguity Aversion and Incompleteness of Financial Markets,"
Papiers d'Economie MathÃÂ©matique et Applications
1999-28, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1).
- Mukerji, Sujoy & Tallon, Jean-Marc, 2001. "Ambiguity Aversion and Incompleteness of Financial Markets," Review of Economic Studies, Wiley Blackwell, vol. 68(4), pages 883-904, October.
- Sujoy Mukerji & Jean-Marc Tallon, 2000. "Ambiguity Aversion and Incompleteness of Financial Markets," Economics Series Working Papers 46, University of Oxford, Department of Economics.
- Roland Bénabou & Jean Tirole, 2002. "Self-Confidence And Personal Motivation," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 871-915, August.
- repec:hal:cesptp:halshs-00130179 is not listed on IDEAS
- Matthew Rabin., 2000.
"Risk Aversion and Expected-Utility Theory: A Calibration Theorem,"
Economics Working Papers
E00-279, University of California at Berkeley.
- Matthew Rabin, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Econometrica, Econometric Society, vol. 68(5), pages 1281-1292, September.
- Rabin, Matthew, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Department of Economics, Working Paper Series qt731230f8, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Matthew Rabin, 2001. "Risk Aversion and Expected Utility Theory: A Calibration Theorem," Levine's Working Paper Archive 7667, David K. Levine.
- Matthew Rabin, 2001. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Method and Hist of Econ Thought 0012001, EconWPA.
- Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
- Gollier, Christian, 2009.
"Portfolio Choices and Asset Prices: The Comparative Statics of Ambiguity Aversion,"
IDEI Working Papers
357, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2011.
- Christian Gollier, 2011. "Portfolio Choices and Asset Prices: The Comparative Statics of Ambiguity Aversion," Review of Economic Studies, Oxford University Press, vol. 78(4), pages 1329-1344.
- Gollier, Christian, 2009. "Portfolio Choices and Asset Prices: The Comparative Statics of Ambiguity Aversion," TSE Working Papers 09-068, Toulouse School of Economics (TSE).
- Matthew Rabin & Richard H. Thaler, 2001. "Anomalies: Risk Aversion," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 219-232, Winter.
- Blundell, Richard & Browning, Martin & Meghir, Costas, 1994.
"Consumer Demand and the Life-Cycle Allocation of Household Expenditures,"
Review of Economic Studies,
Wiley Blackwell, vol. 61(1), pages 57-80, January.
- Richard Blundell & Martin Browning & Costas Meghir, 1993. "Consumer demand and the life-cycle allocation of household expenditures," IFS Working Papers W93/11, Institute for Fiscal Studies.
- Schmidt, Ulrich & Starmer, Chris & Sugden, Robert, 2008.
"Third-generation prospect theory,"
Open Access Publications from Kiel Institute for the World Economy
28932, Kiel Institute for the World Economy (IfW).
- Loomes, Graham & Sugden, Robert, 1982. "Regret Theory: An Alternative Theory of Rational Choice under Uncertainty," Economic Journal, Royal Economic Society, vol. 92(368), pages 805-24, December.
- Chow, Clare Chua & Sarin, Rakesh K, 2001. " Comparative Ignorance and the Ellsberg Paradox," Journal of Risk and Uncertainty, Springer, vol. 22(2), pages 129-39, March.
- Gajdos, T. & Hayashi, T. & Tallon, J.-M. & Vergnaud, J.-C., 2008.
"Attitude toward imprecise information,"
Journal of Economic Theory,
Elsevier, vol. 140(1), pages 27-65, May.
- Richard B. Howarth, 2003. "Discounting and Uncertainty in Climate Change Policy Analysis," Land Economics, University of Wisconsin Press, vol. 79(3), pages 369-381.
- Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie Andersson).
If references are entirely missing, you can add them using this form.