Willingness to pay to reduce future risk: a fundamental issue to invest in prevention behaviour
Jim Engle-Warnick,
Julie Héroux and
Claude Montmarquette
Economic and Political Studies, 2021, vol. 9, issue 1, 17-36
Abstract:
At the core of the decision to invest in prevention are individuals who face immediate real costs against future and uncertain benefits. In this paper, we elicit subjects’ willingness to pay to reduce future risk. In our experiments, subjects are given a cash endowment and a risky lottery. They report their willingness to pay to exchange the risky lottery for a safe one. Subjects play the lottery either immediately, eight weeks later, or 25 weeks later. Thus, both the lottery and the future are sources of uncertainty in our experiments. In two additional treatments, we control for future uncertainty with a continuation probability (a stopping rule), constant and independent across periods, that simulates the chances of not being able to return to play the lottery after 8 and 25 periods. We find evidence for a present bias in both the time-delay sessions and the continuation probability sessions, suggesting that this bias robustly persists in environments including both risk and future uncertainty. Therefore, eliciting prevention behaviour is a major challenge.
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:taf:repsxx:v:9:y:2021:i:1:p:17-36
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DOI: 10.1080/20954816.2020.1827500
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