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Updated: Jun 14, 2026
05:37
An R-Based Landscape Validation of a Competing Risk Model
Published on: September 16, 2022
Risk and uncertainty in health investment.
1Faculty of Economics, Okayama University, 3-1-1 Tsushimanaka, Kita-ku, Okayama, Japan. asano@e.okayama-u.ac.jp
Summary
Individuals may maintain their health capital when healthcare prices are moderate, even under uncertainty about treatment effectiveness. Higher Knightian uncertainty expands the range where no health investment is optimal.
Area of Science:
- Health Economics
- Decision Theory
- Public Health
Background:
- The Grossman model is a foundational framework for understanding health as an economic investment.
- Knightian uncertainty, distinct from risk, involves unknown probabilities, posing unique challenges for decision-making.
- Previous models often assume certainty or known probabilities regarding health interventions.
Purpose of the Study:
- To extend the Grossman model to incorporate Knightian uncertainty regarding health care efficacy.
- To analyze how individuals' optimal health investment decisions change under such uncertainty.
- To determine the conditions under which individuals maintain or alter their health capital.
Main Methods:
- Stochastic extension of the Grossman model of health capital.
- Application of Gilboa and Schmeidler's max/min expected utility (MMEU) model with multiple priors.
- Analysis of optimal health investment behavior under Knightian uncertainty.
Main Results:
- An agent retains initial health capital if healthcare prices fall within a specific range, despite uncertainty.
- The range of prices for which no health investment is made expands with increasing Knightian uncertainty.
- This suggests a more cautious approach to health investments when efficacy is highly uncertain.
Conclusions:
- Knightian uncertainty significantly influences optimal health investment strategies.
- Individuals may forgo health investments due to uncertainty, even if potentially beneficial.
- Policy implications may involve addressing uncertainty to encourage optimal health-seeking behaviors.
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