Subjective Expectations of Medical Expenditures and Insurance in Rural Ethiopia

Debebe, Zelalem Yilma; O’Donnell, Owen; Mebratie, Anagaw Derseh; Alemu, Getnet; Bedi, Arjun S.

doi:10.1108/s0573-855520180000294002

“…Accumulating evidence supports the feasibility and value of eliciting subjective probabilities of various prospects in low-income and low-education settings (Attanasio 2009;Delavande 2014;Delavande et al 2011b). This is one of only a few studies to elicit subjective probabilities of future spending on medical care (Dercon et al 2015;Yilma et al 2018). We follow a common approach of using a visual aid to reduce the cognitive effort required to complete the task (Delavande et al 2011b).…”

Section: Elicitation Of Beliefs About Future Medical Expenditurementioning

confidence: 99%

“…-both in East Africa -that have used elicited subjective probabilities of incurring medical expenses (Dercon et al 2015;Yilma et al 2018). 4 Both find signs of pessimism bias -the sample mean of the subjective expectations exceeds the mean of realized (or past) medical spending.…”

Section: Introductionmentioning

confidence: 99%

A behavioral decomposition of willingness to pay for health insurance

Baillon

¹

,

Kraft

²

,

O’Donnell

³

et al. 2022

Self Cite

View full text Add to dashboard Cite

Despite widespread exposure to substantial medical expenditure risk in low-income populations, health insurance enrollment is typically low. This is puzzling from the perspective of expected utility theory. To help explain it, this paper introduces a decomposition of the stated willingness to pay (WTP) for insurance into its fair price and three behavioral deviations from that price due to risk perception and risk attitude consistent with prospect theory, plus a residual. To apply this approach, we elicit WTP, subjective distributions of medical expenditures and risk attitude (utility curvature and probability weighting) from Filipino households in a nationwide survey. We find that the mean stated WTP of the uninsured is less than both the actuarially fair price and the subsidized price at which public insurance is offered. This is not explained by downwardly biased beliefs: both the mean and the median subjective expectation are greater than the subsidized price. Convex utility in the domain of losses pushes mean WTP below the fair price and the subsidized price, and the transformation of probabilities into decision weights depresses the mean further, at least using one of two specific decompositions. WTP is reduced further by factors other than risk perception and attitude.

show abstract

“…Accumulating evidence supports the feasibility and value of eliciting subjective probabilities of various prospects in low-income and low-education settings (Attanasio, 2009;Delavande et al 2011b;Delavande 2014). This is one of only a few studies to elicit subjective probabilities of future spending on medical care (Dercon et al 2015;Yilma et al 2018). We follow a common approach of using a visual aid to reduce the cognitive effort required to complete the task (Delavande et al 2011b).…”

Section: Elicitation Of Beliefs About Future Medical Expenditurementioning

confidence: 99%

“…incurring medical expenses (Dercon et al 2015;Yilma et al 2018). 3 Both find signs of pessimism bias -the sample mean of the subjective expectations exceeds the mean of realized (or past) medical spending.…”

Section: Introductionmentioning

confidence: 99%

“…See online Appendix 3,Table A3.1 for the sensitivity of the estimates to assuming beta and the piecewise uniform distributions instead of truncated lognormal, and to using upper bounds of 20,000 pesos and 50,000 pesos, instead of 12,000 pesos, for the top interval of medical expenses to which respondents were asked to assign probabilities.23 Using data from Ethiopia, Yilma et al (2018) find, as we do, that respondents overestimate their expected spending on medical care only to a modest extent. In contrast,Dercon et al (2015) in a study conducted in Kenya that confines attention to spending on hospital inpatient care find that the sample mean of the subjective expectations exceeds the mean of actual expenditure by 1518%.24 Yilma et al (2018) also find that the standard deviation of the subjective distribution tends to be less than its expected value.…”

mentioning

confidence: 95%

See 1 more Smart Citation

A Behavioral Decomposition of Willingness to Pay for Health Insurance

Baillon¹,

Kraft

²

,

O’Donnell

³

et al. 2019

SSRN Journal

0

View full text Add to dashboard Cite

Despite widespread exposure to substantial medical expenditure risk in low-income populations, health insurance enrollment is typically low. This is puzzling from the perspective of expected utility theory. To help explain it, this paper introduces a decomposition of the stated willingness to pay (WTP) for insurance into its fair price and three behavioral deviations from that price due to risk perception and risk attitude consistent with prospect theory, plus a residual. To apply this approach, we elicit WTP, subjective distributions of medical expenditures and risk attitude (utility curvature and probability weighting) from Filipino households in a nationwide survey. We find that the mean stated WTP of the uninsured is less than both the actuarially fair price and the subsidized price at which public insurance is offered. This is not explained by downwardly biased beliefs: both the mean and the median subjective expectation are greater than the subsidized price. Convex utility in the domain of losses pushes mean WTP below the fair price and the subsidized price, and the transformation of probabilities into decision weights depresses the mean further, at least using one of two specific decompositions. WTP is reduced further by factors other than risk perception and attitude.

show abstract