Prices, Salience, and the Healthcare Utilization Patterns of Uninsured Families
Abstract: In the market for medical services, the general opacity of out-of-pocket prices induces a significant barrier to optimal consumer behavior. The likelihood of choosing both the right quantity and provider of care decreases with the sparsity on an individual's price information. This creates a particularly hazardous environment for those that lack insurance coverage. In particular, consumers that face high marginal prices and do not accurately and appropriately weigh these prices in their decision making process may overspend initially and subsequently be forced to underutilize. I study this issue empirically using a large panel data set which includes comprehensive information on medical expenditures among families. I develop and estimate a model of medical service demand with variation in the salience of out-of-pocket prices over time. I find evidence that prior family utilization amplifies the disincentivizing effects of being under/uninsured.
Work in Progress
For Whom is the Price Salient? An Empirical Model of Healthcare Demand
Abstract: In canonical empirical models of demand, the regression coefficient on price is typically interpreted as the price elasticity in the population. However, when prices are nonsalient due to shrouding, confusion, or a lack of information, the interpretation of this coefficient is much murkier. The market for medical services is one area in which prices largely exhibit these characteristics, and thus, a model of demand that takes account of this is useful. I develop an empirical model of health care demand that allows for variation in individuals' attention to prices. I estimate the model using a large panel data set which includes comprehensive information on families and their medical service utilization. Machine learning methods are leveraged to estimate underlying ``true'' prices faced by individuals, and a latent class econometric specification is used to fit the model to the data. The estimates are used to analyze the role of salience in affecting both quantity used and prices paid by consumers. Finally, I examine counterfactual simulations with full-attention conusmers and find leftward shifts in the distributions of both quantity and price.
Fluency Theory of Economic Choice
Abstract: Research in psychology and economics suggests that the conservation and allocation of cognitive resources plays a substantial role in human decision-making processes. One manifestation of this principle is that individuals tend to focus too little on consequences that lack fluency or are difficult to process. In this paper, I develop a generally applicable theory of choice in which the decision-maker underweights consequences that lack fluency. I then consider a number of environments in which fluency is likely to be an important factor affecting choice such as insurance and financial markets. I also characterize profit-maximizing pricing contracts in the presence of fluency effects, and discuss real-world examples of such contracts.
Price Transparency and Price Dispersion in the Market for Medical Care