Ruhr Economic Papers

Ruhr Economic Papers #863

Prudence and Prevention – Empirical Evidence

by Hendrik Schmitz and Thomas Mayrhofer

RWI, 08/2020, 24 S./p., 8 Euro, ISBN 978-3-96973-000-3 DOI: 10.4419/96973000

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Abstract

Theoretical papers show that optimal prevention decisions in the sense of selfprotection (i.e., primary
prevention) depend not only on the level of (second-order) risk aversion but also on higher-order risk
preferences such as prudence (third-order risk aversion). We study empirically whether these theoretical
results hold and whether prudent individuals show less preventive (self-protection) effort than non-prudent individuals. We use a unique dataset that combines data on higher-order risk preferences and various measures of observed real-world prevention behavior. We find that prudent individuals indeed invest less in self-protection as measured by influenza vaccination. This result is driven by high risk individuals such as individuals >60 years of age or chronically ill. We do not find a clear empirical relationship between riskpreferences and prevention in the sense of self-insurance (i.e. secondary prevention). Neither risk aversion nor prudence is related to cancer screenings such as mammograms, Pap smears or X-rays of the lung.

JEL-Classification: D12, D81, I12

Keywords: Prudence; risk preferences; prevention; vaccination; screening

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