Approaches to Estimating the Health State Dependence of the Utility Function

If the marginal utility of consumption depends on health status, this will affect the economic analysis of a number of central problems in public finance, including the optimal structure of health insurance and optimal life cycle savings. In this paper, we describe the promises and challenges of various approaches to estimating the effect of health on the marginal utility of consumption. Our basic conclusion is that while none of these approaches is a panacea, many offer the potential to shed important insights on the nature of health state dependence.

Interdependent Utilities: How Social Ranking Affects Choice Behavior

Organization in hierarchical dominance structures is prevalent in animal societies, so a strong preference for higher positions in social ranking is likely to be an important motivation of human social and economic behavior. This preference is also likely to influence the way in which we evaluate our outcome and the outcome of others, and finally the way we choose. In our experiment participants choose among lotteries with different levels of risk, and can observe the choice that others have made. Results show that the relative weight of gains and losses is the opposite in the private and social domain. For private outcomes, experience and anticipation of losses loom larger than gains, whereas in the social domain, gains loom larger than losses, as indexed by subjective emotional evaluations and physiological responses. We propose a theoretical model (interdependent utilities), predicting the implication of this effect for choice behavior. The relatively larger weight assigned to social gains strongly affects choices, inducing complementary behavior: faced with a weaker competitor, participants adopt a more risky and dominant behavior

Subjective Well-being in Rural India: The Curse of Conspicuous Consumption

Using data on 697 individuals from 375 rural low income households in India, we test expectations on the effects of relative income and conspicuous consumption on subjective well-being. The results of the multi-level regression analyses show that individuals who spent more on conspicuous consumption report lower levels of subjective well-being. Surprisingly an individual’s relative income position does not affect feelings of well-being. Motivated by positional concerns, people do not passively accept their relative rank but instead consume conspicuous goods to keep up with the Joneses. Conspicuous consumption always comes at the account of the consumption of basic needs. Our analyses point at a positional treadmill effect of the consumption of status goods

Risk preference and choice stochasticity during decisions for other people

In several contexts, such as finance and politics, people make choices that are relevant for others but irrelevant for oneself. Focusing on decision-making under risk, we compared monetary choices made for one’s own interest with choices made on behalf of an anonymous individual. Consistent with the previous literature, other-interest choices were characterized by an increased gambling propensity. We also investigated choice stochasticity, which captures how much decisions vary in similar conditions. An aspect related to choice stochasticity is how much decisions are tuned to the option values, and we found that this was higher during self-interest than during other-interest choices. This effect was observed only in individuals who reported a motivation to distribute rewards unequally, suggesting that it may (at least partially) depend on a motivation to make accurate decisions for others. Our results indicate that, during decision-making under risk, choices for other people are characterized by a decreased tuning to the values of the options, in addition to enhanced risk seeking