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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. John List, 2004. "Neoclassical theory versus prospect theory: Evidence from the marketplace," Framed Field Experiments, The Field Experiments Website 00174, The Field Experiments Website.
  2. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, Econometric Society, vol. 47(2), pages 263-91, March.
  3. Claudia Senik, 2007. "Is man doomed to progress?," PSE Working Papers, HAL halshs-00590519, HAL.
  4. 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).
  5. Koszegi, Botond & Rabin, Matthew, 2004. "A Model of Reference-Dependent Preferences," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt0w82b6nm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  6. Andrew Caplin & John Leahy, 2001. "Psychological Expected Utility Theory And Anticipatory Feelings," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(1), pages 55-79, February.
  7. Koszegi, Botond & Rabin, Matthew, 2008. "Choices, situations, and happiness," Journal of Public Economics, Elsevier, Elsevier, vol. 92(8-9), pages 1821-1832, August.
  8. Dhami, Sanjit & al-Nowaihi, Ali, 2007. "Why do people pay taxes? Prospect theory versus expected utility theory," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 64(1), pages 171-192, September.
  9. Christopher D. Carroll & Jody Overland & David N. Weil, 1995. "Saving and growth with habit formation," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 95-42, Board of Governors of the Federal Reserve System (U.S.).
  10. Gollier, Christian & Muermann, Alexander, 2006. "Optimal Choice and Beliefs with Ex Ante Savoring and Ex Post Disappointment," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 462, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2009.
  11. Lixin Cai & Guyonne Kalb, 2006. "Health status and labour force participation: evidence from Australia," Health Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 15(3), pages 241-261.
  12. 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).
  13. Andrew Caplin & John Leahy, 2004. "The supply of information by a concerned expert," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 114(497), pages 487-505, 07.
  14. Alex Michalos & Bruno Zumbo & Anita Hubley, 2000. "Health and the Quality of Life," Social Indicators Research, Springer, Springer, vol. 51(3), pages 245-286, September.
  15. Koszegi, Botond, 2003. "Health anxiety and patient behavior," Journal of Health Economics, Elsevier, Elsevier, vol. 22(6), pages 1073-1084, November.
  16. 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, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 37(3), pages 343-349, 09.
  17. Loewenstein, George, 1987. "Anticipation and the Valuation of Delayed Consumption," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 97(387), pages 666-84, September.
  18. Botond Koszegi & Matthew Rabin, 2009. "Reference-Dependent Consumption Plans," American Economic Review, American Economic Association, American Economic Association, vol. 99(3), pages 909-36, June.
  19. Loomes, Graham & Sugden, Robert, 1982. "Regret Theory: An Alternative Theory of Rational Choice under Uncertainty," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 92(368), pages 805-24, December.
  20. Gul, Faruk, 1991. "A Theory of Disappointment Aversion," Econometrica, Econometric Society, Econometric Society, vol. 59(3), pages 667-86, May.
  21. Groot, Wim, 2000. "Adaptation and scale of reference bias in self-assessments of quality of life," Journal of Health Economics, Elsevier, Elsevier, vol. 19(3), pages 403-420, May.
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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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