Measuring Aversion to Health Risks

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.