Author

  • Joseph G. Eisenhauer

    • University of Detroit Mercy, Michigan, USA
    • United States

  • Kristine E. Principe

    • Niagara University, USA
    • United States

Abstract

Researchers have commonly used financial gambles to assess risk preferences, though attitudes regarding monetary gambles may differ from those concerning health risks. Moreover, the conventional measure of risk preference—the Pratt-Arrow coefficient of relative risk aversion—is a point-elasticity suitable only for trivial risks, whereas the risks pertaining to medical treatment—often involving life-ordeath decisions—are quite substantial. Our objective is to examine attitudes toward health risks and the variables that influence those attitudes. In addition to the conventional metric, we employ an alternative measure of risk aversion designed for large-scale risks; the latter is calculated as an arc-elasticity of marginal utility. Both measures are applied to responses from a health preference survey, which incorporates a standard gamble over longevity. Measured risk aversion is then related to health and demographic variables using multiple linear regressions. Our research suggests that tolerance of health risks may be influenced by an endowment effect reflecting the asymmetry of medical information between patients and providers. We also find that the arc-elasticity measure captures more of the significant differences and has a stronger correlation to demographic and socio-economic variables than does the more traditional point-elasticity measure, indicating that the conventional measures of risk aversion are indeed ill suited to large-scale risks such as those involving health. In addition, our results suggest that health-related risk preferences may differ from financial risk attitudes. Although our sample is relatively small and largely homogeneous, these results collectively provide a basis for replication and a justification for additional study on the measurement of risk aversion with regard to health.

Keywords

References

  • Anderson, L. A. & Mellor, J. M. (2008). Predicting health behaviors with an experimental measure of risk preference. Journal of Health Economics , 27(5), 1260-1274.
  • Ariely, D. (2008). Predictably Irrational: The Hidden Forces that Shape our Decisions. NY: Harper Collins.
  • Arrow, K. J. (1965). Aspects of the Theory of Risk Bearing. Helsinki: Yrjo Jahnsson.
  • Barsky, R. B., Juster, F. T., Kimball, M. S. & Shapiro, M. D. (1997). Preference parameters and behavioral heterogeneity: An experimental approach in the Health and Retirement Study. Quarterly Journal of Economics , 112(2), 537-579.
  • Ben-Zion, U. & Gafni, A. (1983). Evaluation of public investment in health care: Is the risk irrelevant? Journal of Health Economics , 2(2), 161-165.
  • Centers for Disease Control and Prevention (2011). About BMI for Adults. http://www.cdc.gov/healthyweight/assessing/bmi/adult_bmi/index.html , February 15.
  • Eeckhoudt, L., Gollier, C. & Schlesinger, H. (2005). Economic and Financial Decisions under Risk. Princeton: Princeton University Press.
  • Eisenhauer, J. G. (2000). Estimating prudence. Eastern Economic Journal , 26(4), 379-392.
  • Eisenhauer, J. G. (2006). Risk aversion and prudence in the large. Research in Economics , 60(4), 179-187.
  • Eisenhauer, J. G. (2008). Attitudes toward large-scale risks: A discrete estimation using Dutch data. European Journal of Economics, Finance and Administrative Sciences , 10, 138-150.
  • Eisenhauer, J. G. (2010a). Rank ordering of risk preferences with conventional and discrete measures. Quarterly Review of Economics and Finance , 50(3), 291-297.
  • Eisenhauer, J. G. (2010b). A simple metric for gauging risk aversion. Asia-Pacific Journal of Risk and Insurance , 4(2), article 6: 1-10.
  • Eisenhauer, J. G. & Ventura, L. (2003). Survey measures of risk aversion and prudence. Applied Economics , 35(13), 1477-1484.
  • Eisenhauer, J. G. & Ventura, L. (2011). Interval risk aversion. Applied Economics , 43(9), 1139-1150.
  • Gyrd-Hansen, D. (2002). Comparing the results of applying different methods of eliciting time preference for health. European Journal of Health Economics , 3(1), 10-16.
  • Hammitt, J. K., Haninger, K. & Triech, N. (2009). Effects of health and longevity on financial risk tolerance. Geneva Risk and Insurance Review , 34(2), 117-139.
  • Heinzel, C. (2009). Long run choice behavior under uncertainty in finance, the economics of risk and time, and applied economic studies: A review of literature and recent advances. University of New South Wales, July.
  • Hersch, J. (1996). Smoking, seat belts, and other risky consumer decisions: Differences by gender and race. Managerial and Decision Economics , 17(5), 471-481.
  • Jianakoplos, N. A. & Bernasek, A. (1998). Are women more risk averse? Economic Inquiry , 36(4), 620-630.
  • Johannson, P. O. (1995). Evaluating Health Risks: An Economic Approach. Cambridge: Cambridge University Press.
  • Knetch, J. L. & Wong, W. K. (2009). The endowment effect and the reference state: Evidence and manipulations. Journal of Economic Behavior and Organization , 71(2), 407-413.
  • Law, A. V., Pathak, D. S. & McCord, M. R. (1998). Health status utility assessment by standard gamble: A comparison of the probability equivalence and the lottery equivalence approaches. Pharmaceutical Research , 15(1), 105-109.
  • Levin, I. P., Snyder, M. A. & Chapman, D. P. (1988). The interaction of experiential and situational factors and gender in a simulated risky decision-making task. Journal of Psychology , 122(2), 173-181.
  • Meyer, D. J. & Meyer, J. (2005). Measuring Risk Aversion. Hanover, MA: Now Publishers.
  • Nakata, Y., Okuno-Fujiwara, M., Goto, T. & Morita, S. (2000). Risk attitudes of anesthesiologists and surgeons in clinical decision making with expected years of life. Journal of Clinical Anesthesia , 12(2), 146-150.
  • Neelakantan, U. (2010). Estimation and impact of gender differences in risk tolerance. Economic Inquiry , 48(1), 228-233.
  • Oliver, A. & Cookson, R. (2010). Analyzing risk attitudes to time. Health Economics , 19(6), 644-655.
  • Powell, M. & Ansic, D. (1997). Gender differences in risk behavior in financial decision-making: An experimental analysis. Journal of Economic Psychology , 18(6), 605-628.
  • Pratt, J. W. (1964). Risk aversion in the small and in the large. Econometrica , 32(1-2), 122-136.
  • Prosser, L. A. & Wittenberg, E. (2007). Do risk attitudes differ across domains and respondent types? Medical Decision Making , 27(3), 281-287.
  • Puhan, M. A., Schunemann, H. J., Wong, E., Griffith, L. & Guyatt, G. H. (2007). The standard gamble showed better construct validity than the time trade-off. Journal of Clinical Epidemiology , 60(10), 1029-1033.
  • San-Miguel, F., Ryan, M. & Amaya-Amaya, M. (2005). Irrational stated preferences: A quantitative and qualitative investigation. Health Economics , 14(3), 307-322.
  • Torrence, G. W., Furlong, W. & Feeny, D. (2002). Health utility estimation. Expert Reviews of Pharmacoeconomics & Outcomes Research , 2(2), 99-108.
  • Van-der-Pol, M. & Ruggeri, M. (2008). Is risk attitude outcome specific within the health domain? Journal of Health Economics , 27(3), 706-717.
  • Verhoef, L. C. G., De-Haan, A. F. J. & Van-Daal, W. A. J. (1994). Risk attitude in gambles with years of life. Medical Decision Making , 14(2), 194-200.
  • Von-Gaudecker, H. M., van-Soest, A. & Wengstrom, E. (2011). Heterogeneity in risky choice behavior in a broad population. American Economic Review , 101(2), 664-694.

Downloads

No downloads have been recorded for this article yet. Figures appear here once readers begin downloading the full text.

How to Cite

Eisenhauer, J. G., & Principe, K. E. (2012). Measuring Aversion to Health Risks. Journal of Economics and Behavioral Studies, 4(2), 96-107. https://doi.org/10.22610/jebs.v4i2.307

Share this article

License

Copyright (c) 2012 Joseph G. Eisenhauer, Kristine E. Principe (Author)

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of revised paper in the light of suggestions of the reviewers, the editorial team  edits and formats manuscripts to bring uniformity and standardization in published material.

This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.

Keywords

Section

Research Paper

Published in

Vol. 4 No. 2 (2012) Experiments, Banking Risk & Euro Zone Futures View issue contents

Published

2012-02-15

Submissions

Have research to publish? Journal of Economics and Behavioral Studies welcomes submissions.

Make a Submission