When Risk Perception Gets in the Way: Probability Weighting and Underprevention

Aurélien Baillon (), Han Bleichrodt, Aysil Emirmahmutoglu (), Johannes Jaspersen () and Richard Peter ()
Additional contact information
Aurélien Baillon: Erasmus School of Economics, Erasmus University Rotterdam, 3062 PA Rotterdam, Netherlands
Aysil Emirmahmutoglu: Department of Business and Management Science, NHH Norwegian School of Economics, 5045 Bergen, Norway
Johannes Jaspersen: Munich Risk and Insurance Center (MRIC), LMU Munich, 80539 Munich, Germany
Richard Peter: Department of Finance, University of Iowa, Iowa City, Iowa 52242

Operations Research, 2022, vol. 70, issue 3, 1371-1392

Abstract: Personal decisions about health hazards are the main cause of impaired health and premature death. People smoke and eat too much, and they exercise too little. The lack of preventive efforts is surprising given their proven effectiveness. In the early 1960s, Arrow suggested that moral hazard might be a reason for underprevention, but this explanation was later challenged. In this paper, we show that underprevention might be caused by misperceived probabilities. We derive when and how probability weighting gets in the way of prevention by blurring its benefits. We use a general model of prevention, encompassing several special cases from the literature. We also show how perceived ambiguity makes the problem of underprevention even worse by amplifying the effect of probability weighting.

Keywords: Special Issue: Mathematical Models of Individual and Group Decision Making in Operations Research (in honor of Kenneth Arrow); prevention; probability weighting; likelihood insensitivity; medical decision making (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/opre.2019.1910 (application/pdf)

Related works:
Working Paper: When Risk Perception Gets in the Way: Probability Weighting and Underprevention (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:70:y:2022:i:3:p:1371-1392

Access Statistics for this article

More articles in Operations Research from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().