Prudence and Prevention: An Empirical Investigation

Thomas Mayrhofer┬╣ (with Hendrik Schmitz┬▓)

1 Hochschule Stralsund

2 Paderborn University

Theoretical papers show that optimal prevention decisions (in the sense of self-protection) depend not only on the level of (second-order) risk aversion but also on higher-order risk preferences such as prudence (third-order risk aversion). We study empirically whether these theoretical results hold and prudent individuals show less preventive effort (in the sense of self-protection) than non-prudent individuals. We use a unique dataset that combines data on (higher-order) risk preference and various measures regarding prevention, such as the use of flu vaccination (prevention in the sense of self-protection) and mammograms (prevention in the sense of self-insurance). We find that for high risk individuals such as individuals >60 years of age, prudence has a significant negative impact on the likelihood of undergoing flu vaccination. We find no such effects for screening methods such as mammographs, i.e. prevention in the sense of self-insurance.