The triumph of hope over disappointment: A note on the utility value of good health expectations

Gigi Foster, Paul Frijters and David Johnston

Journal of Economic Psychology, 2012, vol. 33, issue 1, 206-214

Abstract: In this paper, we present and test the empirical implications of competing theories about how expectations of outcomes affect utility. In the first utility formulation, which is consistent with particular interpretations of disappointment, prospect theory and regret theory, individuals receive negative utility from outcomes that were worse than expected. This directly implies that expectations themselves enter utility negatively. The second utility formulation incorporates anticipatory savoring, where positive expectations about the future directly lead to more utility today. We test which of these formulations best explains actual connections between health and welfare over time, using data from the Household Income and Labour Dynamics in Australia survey. Estimated coefficients from fixed-effects ordered logit models support a strong positive utility impact of positive expectations: expecting good health in the future increases happiness now. Our results are one argument for benevolent health care providers to allow individuals to maintain unrealistically positive expectations about the future.

Keywords: Behavioral economics; Optimism; Micro-econometrics (search for similar items in EconPapers)
JEL-codes: D40 L10 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (13)

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Working Paper: The triumph of hope over regret: A note on the utility value of good health expectations (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:33:y:2012:i:1:p:206-214

DOI: 10.1016/j.joep.2011.09.010

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