Heterogeneity in state-dependent utility: Evidence from strategic surveys

Jeffrey R. Brown, Gopi Shah Goda, Kathleen Mcgarry

Research output: Contribution to journalArticle

Abstract

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.

Original languageEnglish (US)
Pages (from-to)847-861
Number of pages15
JournalEconomic Inquiry
Volume54
Issue number2
DOIs
StatePublished - Apr 1 2016

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ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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