Fredrik Andersson and Carl Hampus Lyttkens
Ever since the seminal article by Arrow (1963), it has been a commonplace to note that the presence of uncertainty is a particularly salient feature in decisions on health and health care. A number of studies have appeared that introduce probabilistic elements in the individual’s demand for health, and there is a substantial literature that focuses on the value of changes in health risks. For example, in the so-called demand-for-health tradition - emanating from Grossman’s (1972) wellknown work - there are several probabilistic versions, 1 and the implications of risk in the health production function have been explored in a valuation context (Johansson, 1994). 2 There remains to introduce, however, the distinction between risk - i.e. uncertainty with known probabilistic properties - and genuine uncertainty - i.e. uncertainty with unknown probabilistic properties - in formal models of health-related behaviour.
In this chapter, we introduce genuine uncertainty as well as uncertainty aversion into a simple model of individual decision-making about health-related activities. This is potentially important, since, arguably, the conditions for many of the decisions an individual makes concerning his own health more closely resemble conditions of genuine uncertainty than pure risk. The individual is likely to be highly uncertain if not completely ignorant about the probabilities involved. For example, he may be vaguely aware that there is a serious disease called leukaemia while having no idea of whether he is likely to get it and no idea about his possibilities to affect the likelihood of getting it.
Within this format, we investigate the consequences for health-related behaviour of individual attitudes towards health and information as well as of exogenous changes in the individual’s decision environment. In the section on Individual trade-offs and personality traits we show how health-related decisions are affected by the individual’s degree of pessimism with respect to health states with unknown probabilities; we also consider the effects of the individual being confident or diffident about the accuracy of the information he possesses.
Furthermore, we analyse in the section on Individual trade-offs and exogenous changes in information, prevention, prices, and income, how different forms of