Matthew Rabin
The Department of Economics invites you to a Faculty seminar with Matthew Rabin, Pershing Square Professor of Behavioural Economics in the Harvard Economics Department and Harvard Business School.
Building from Kahneman and Tversky (1979) and others, Kőszegi and Rabin (2006, 2007, 2009) formally model the idea that—in addition to direct utility from consumption itself—utility depends on good news and (especially) bad news about consumption relative to recent expectations. In this paper we explore the implications of such “news utility” for how people manage their exposure to risk in consumption, health, and spending as part of their (non-Mturk) lives. When no insurance is available: Consumers value (1) durable goods that can be repurchased when they break more than those that cannot, (2) durables and health regimes that generate little interim news more than those that generate frequent “false alarms” that the durable good (or their health) might break down, and (3) non-durables that ameliorate unexpected negative experiences more than those that produce unexpected positive experiences. When insurance is available, consumers (1) value insurance for both durable and non-durable goods far more than the classical economic account based on diminishing marginal value of spending predicts, and (2) especially highly value insurance for durable goods and health problems that generate frequent “false alarms”, and insurance offsetting purchases of non-durables that meliorate unexpected badnesses more than those that facilitate unexpected pleasures. Finally, we show that even when health insurance leads to predictable increases consumption on medical resources or decreases in preventive measures it may reflect improvements to welfare rather than inefficient moral hazard.
If you have any queries regarding the seminar, please contact the seminar organisers Ingar Kyrkjebø Haaland, Jonna Olsson, Andreas Haller or Helene Bjørndal Fosse.