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The triumph of hope over regret: A note on the utility value of good health expectations

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Abstract

In this paper we compare three theories of utility formation: prospect theory, regret theory, and a combination which additionally allows for direct utility flows from positive expectations. We then test which of these theories best explains actual connections between health and welfare over time, using a rich Australian data set on health expectations, economic behavior, and well-being. We find evidence supporting a much stronger utility impact of health expectations than of regret regarding health. Our results support the idea than unless individuals are able to alter their future health outcomes by changing their behavior, a benevolent health care provider should only provide good information about the future.

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File URL: http://www.uq.edu.au/economics/abstract/451.pdf
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Bibliographic Info

Paper provided by School of Economics, University of Queensland, Australia in its series Discussion Papers Series with number 451.

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Date of creation: 31 Jan 2012
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Handle: RePEc:qld:uq2004:451

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  1. Loewenstein, George, 1987. "Anticipation and the Valuation of Delayed Consumption," Economic Journal, Royal Economic Society, vol. 97(387), pages 666-84, September.
  2. Koszegi, Botond, 2003. "Health anxiety and patient behavior," Journal of Health Economics, Elsevier, vol. 22(6), pages 1073-1084, November.
  3. Botond Koszegi & Matthew Rabin, 2004. "A Model of Reference-Dependent Preferences," Method and Hist of Econ Thought 0407001, EconWPA.
  4. Gollier, Christian & Muermann, Alexander, 2006. "Optimal choice and beliefs with ex ante savoring and ex post disappointment," CFS Working Paper Series 2006/28, Center for Financial Studies (CFS).
  5. Andrew Caplin & John Leahy, 2004. "The supply of information by a concerned expert," Economic Journal, Royal Economic Society, vol. 114(497), pages 487-505, 07.
  6. Senik, Claudia, 2006. "Is Man Doomed to Progress?," IZA Discussion Papers 2237, Institute for the Study of Labor (IZA).
  7. Dhami, Sanjit & al-Nowaihi, Ali, 2007. "Why do people pay taxes? Prospect theory versus expected utility theory," Journal of Economic Behavior & Organization, Elsevier, vol. 64(1), pages 171-192, September.
  8. Christopher D. Carroll & Jody Overland & David N. Weil, 1995. "Saving and growth with habit formation," Finance and Economics Discussion Series 95-42, Board of Governors of the Federal Reserve System (U.S.).
  9. Gul, Faruk, 1991. "A Theory of Disappointment Aversion," Econometrica, Econometric Society, vol. 59(3), pages 667-86, May.
  10. Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007. "Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," IZA Discussion Papers 2840, Institute for the Study of Labor (IZA).
  11. Nicole Watson & Mark Wooden, 2004. "The HILDA Survey Four Years On," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 37(3), pages 343-349, 09.
  12. 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.
  13. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  14. Lixin Cai & Guyonne Kalb, 2006. "Health status and labour force participation: evidence from Australia," Health Economics, John Wiley & Sons, Ltd., vol. 15(3), pages 241-261.
  15. Koszegi, Botond & Rabin, Matthew, 2008. "Choices, situations, and happiness," Journal of Public Economics, Elsevier, vol. 92(8-9), pages 1821-1832, August.
  16. 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.
  17. John A. List, 2004. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," Econometrica, Econometric Society, vol. 72(2), pages 615-625, 03.
  18. Alex Michalos & Bruno Zumbo & Anita Hubley, 2000. "Health and the Quality of Life," Social Indicators Research, Springer, vol. 51(3), pages 245-286, September.
  19. Botond Koszegi & Matthew Rabin, 2009. "Reference-Dependent Consumption Plans," American Economic Review, American Economic Association, vol. 99(3), pages 909-36, June.
  20. Andrew Caplin & John Leahy, 2001. "Psychological Expected Utility Theory And Anticipatory Feelings," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 55-79, February.
  21. Leslie I. Boden & Monica Galizzi, 2003. "Income Losses of Women and Men Injured at Work," Journal of Human Resources, University of Wisconsin Press, vol. 38(3).
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Hope keeps people happy and healthy so dont always tell the truth
    by Paul Frijters in Core Economics on 2012-05-01 23:39:29
  2. Hope keeps people happy and healthy so dont always tell the truth
    by Paul Frijters in Core Economics on 2012-05-01 23:39:29
  3. Hope keeps people happy and healthy so dont always tell the truth
    by Paul Frijters in Club Troppo on 2012-05-01 23:36:35
  4. Lying politicians, part I: Why do they do it?
    by Paul Frijters in Core Economics on 2012-10-29 01:21:05
  5. Lying politicians, part I: Why do they do it?
    by Paul Frijters in Club Troppo on 2012-10-29 01:21:01

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