Cognitive Biases and the Demand for Health and Health Insurance

Hanming Fang, Yale University
Dan Silverman, University of Michigan

Many millions of Americans go without health insurance, and there is a significant correlation between lack of health insurance and negative health and economic outcomes. Economic analysts would attribute many of the decisions to forgo insurance, at their base, to "tastes" favoring near-term consumption over future health and consumption. A concern is that what is interpreted as standard tastes for intertemporal tradeoffs may in fact reflect cognitive biases including present-biased time discounting and biased beliefs. The goal of our proposed research is to develop a detailed theoretical and empirical foundation for distinguishing among sources of heterogeneity in tastes for intertemporal tradeoffs by modeling, and assessing the empirical importance of, prominent cognitive biases. Our interest is in a better understanding of how hyperbolic (more generally, present-biased) preferences, and overconfidence and projection bias (more generally, belief bias) may influence decisions about health insurance coverage and investments in health including investments in preventive care.