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Health Investments Under Risk And Ambiguity

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  • Johansson-Stenman, Olof

    () (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

This 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.

Suggested Citation

  • Johansson-Stenman, Olof, 2010. "Health Investments Under Risk And Ambiguity," Working Papers in Economics 443, University of Gothenburg, Department of Economics.
  • Handle: RePEc:hhs:gunwpe:0443
    as

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    File URL: http://hdl.handle.net/2077/22322
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    References listed on IDEAS

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    More about this item

    Keywords

    Investment under uncertainty; risk aversion; ambiguity aversion;

    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

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