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Effects of Retirement and Lifetime Earnings Profile on Health Investment

Listed author(s):
  • Hernán Bejarano

    (Economic Science Institute, Chapman University, Orange, CA)

  • Hillard Kaplan

    (Economic Science Institute, Chapman University, Orange, CA and University of New Mexico, Albuquerque, NM)

  • Stephen Rassenti

    (Economic Science Institute, Chapman University, Orange, CA)

We report the results of experiments where in each period of her lifetime the subject must choose how to allocate real earned income between health investment and life enjoyment in each period of a nine-period life in order to maximize aggregate life enjoyment. The key dynamic optimization challenge of the experiment to subjects derives from the fact that investments in health affect future income, but detract from current consumption. Our experimental results show that subjects were successful at reproducing the qualitative predictions of the theoretical model, investing more in health in the absence of retirement and with increasing income profiles. However, we did observe a systematic bias in health investments, being less than optimal in early periods and greater than optimal in late periods of life. We also found a significant effect due to social groupings. These results highlight the potential of lab experiments as a method to study health decisions and understand their determinants.

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File URL: http://www.chapman.edu/research-and-institutions/economic-science-institute/_files/WorkingPapers/bejarano-kaplan-rassenti-2014.pdf
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Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 14-21.

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Date of creation: 2014
Handle: RePEc:chu:wpaper:14-21
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