Curious about empirical findings that people showing symptoms of an illness avoid visits to a doctor, Ksenia Panidi constructs a formal model that draws heavily on the concept of loss aversion and reference points. The model shows why loss averse people have incentives to avoid visiting a doctor when threatened with a high risk of illness and when the benefits of getting treatment are low. The intuition is that any “gains” of good news about a treatment will be weighed against the reference point of seriousness of the illness. Given an aversion to losses, a person will avoid many potentially salutary treatments, since they tend to come with considerable risks. Panidi’s model is different because of its emphasis on the emotional costs and benefits of sickness and treatment rather than the financial ones.
A point of caution about Panidi’s predictions. As she notes, her model considers decision making in a single time period. Loss aversion is most pronounced at the initial reference point – the origin on a simple x,y graph. In the original prospect theory graph as one moves away from the origin in the loss direction, the strength of aversion weakens. What this means is that eventually, we should expect someone, even a very sick, very loss averse someone, to visit a doctor and accept treatment. Nevertheless, Panidi’s model suggests loss aversion may be a phenomenon worth paying more attention to as policymakers look for ways to expand preventative care.
Tags: health, loss aversion
