We present a theoretical model of health beliefs and behaviors that explicitly takes into account the emotional impact of possible bad news, ex-ante in the form of anxiety and ex-post in the form of disappointment. Our model makes it possible to explain a number of anomalies such as ’low’ testing rates, heterogeneous perceptions of risk levels, underestimation of health risk, ostriches and hypochondriacs, over-use and under-use of health services, patient preference for information when relatively certain of not being ill, yet (...) avoiding information when relatively certain of being ill, etc. Our model matches observed patterns both in health beliefs and health behaviors and irrational health beliefs and behaviors can be characterized as the optimal response under a given structure of emotions and preferences. (shrink)

It is an important issue for economic and finance applications to determine whether individuals exhibit a behavioral bias toward pessimism in their beliefs, in a lottery or more generally in an investment opportunities framework. In this paper, we analyze the answers of a sample of 1,540 individuals to the following question “Imagine that a coin will be flipped 10 times. Each time, if heads, you win \documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$10\texttt{C}\!\!\!\rule[2.3pt]{.4em}{.3pt}\!\!\rule[3.3pt]{.4em}{.3pt}$$\end{docum ent}. How many times do you (...) think that you will win?” The average answer is surprisingly about 3.9 which is below the average 5, and we interpret this as a pessimistic bias. We find that women are more “pessimistic” than men, as are old people relative to young. We also analyze how our notion of pessimism is related to more general notions of pessimism previously introduced in psychology. (shrink)

In this article, we show that behavioral features can be obtained at a group level even if they do not appear at the individual level. Starting from a standard model of Pareto optimal allocations, with expected utility maximizers but allowing for heterogeneity among individual beliefs, we show in particular that the representative agent has an inverse S-shaped probability distortion function as in Cumulative prospect theory.

It is an important issue for economic and finance applications to determine whether individuals exhibit a behavioral bias toward pessimism in their beliefs, in a lottery or more generally in an investment opportunities framework. In this paper, we analyze the answers of a sample of 1,540 individuals to the following question: Imagine that a coin will be flipped 10 times. Each time, if heads, you win 10 Euros. How many times do you think that you will win? The average answer (...) is surprisingly about 3.9 which is below the average 5, and we interpret this as a pessimistic bias. We find that women are more 'pessimistic' than men, as are old people relative to young. We also analyze how our notion of pessimism is related to more general notions of pessimism previously introduced in psychology. (shrink)