Alternative Models of Choice Under Uncertainty and Demand for Health Insurance

Authors:
  • MMM. Susan Marquis
    M. Susan Marquis
  • MHMartin R. Holmer
    Martin R. Holmer
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Abstract
We test a standard expected utility model and alternative models about how people evaluate risky prospects using data about individuals' preferences among health insurance plans. A model that assumes people evaluate gains and losses relative to a reference rather than final outcomes, treat gains and losses asymmetrically, and process certain and uncertain outcomes separately provides a better fit than the standard utility model. These findings suggest inertia in health insurance plan choice and that individuals are more responsive to decreases than to increases in the price of insurance.