Heterogeneity in state-dependent utility: Evidence from strategic surveys

A standard result of life-cycle models under uncertainty is that optimizing individuals equate the expected marginal utility of consumption across states of the world if insurance is available at actuarially fair rates. A small empirical literature has suggested that the marginal utility of consumption is lower in less healthy states. We use a novel survey-based measure to document significant heterogeneity in health-state dependence across individuals largely orthogonal to standard controls. We further show that individuals value unhealthy states of the world more when facing work-limiting disabilities than when facing disabilities requiring long-term care, and when facing physical rather than mental disabilities.