lecture 4 - health behaviour

Question 1

Analysis of rational behaviour

Answer 1

• Individual weighs benefits against costs of actions, including heath consequences
• Individual is best judge of own welfare (consumer sovereignty)
• Behaviour is optimal for individual who exercises preferences subject to resource constraints
• Government intervention to influence behaviour justified only to
  o Correct externalities
  o Redistribute by changing resource constraints

Question 2

analyses of irrational behaviour

Answer 2

• Individual prone to psychological biases that interfere with cost-benefit calculation
• Biases cause individual to overlook (long-term) costs or benefits of own behaviour to themselves
• That is, the biases generate internalities
  o Imposing costs and benefits on themselves rather than on others
• Individual is not necessarily best judge of won welfare (consumer sovereignty violated)
  o Because they are overlooking those consequences for themselves
• Behaviour is determined by preferences, resource constraints, and cognitive ability
• Behaviour is not necessarily optimal even for individuals own welfare
• Government intervention to influence behaviour justified to
  o Correct externalities
  o Redistribute by changing resource constraints
  o Correct internalities = correct biases that individuals are making by designing some policies