Current Working Papers
- Opening up the Black Box: The Impact of Technological Transparency on Self-Protection. (Single-authored)
Abstract: This article discusses the behavioral and welfare implications of uncovering the mechanism of self-protection technologies. Based on a new interpretation of self-protection, we introduce the concept of technological transparency -- the extent to which the mechanism of the technology is understood. We analyze the consequence of improved technological transparency according to whether the improvement stems from uncovering exogenous or endogenous risk determinants. We show that technological transparency improves welfare through enabling more efficient prevention, but this welfare improvement may be undermined or even reversed if information is incompletely disclosed or if an insurance market for the risk exists. We also show that technological transparency affects behavior through an ex ante information channel and an ex post regret channel. Our findings have implications on the cost-benefit analysis of scientific research conducted to identify hidden risk determinants. They also inform the design of personalized preventive healthcare, as well as information campaigns to promote public safety.
- Should We Do More When We Know Less? Optimal Risk Mitigation under Technological Uncertainty, with Richard Peter.
Abstract: Most risk mitigation activities involve technological uncertainty (TU) because their effectiveness depends on exogenous factors beyond the decision-maker's control or due to the decision-maker's incomplete knowledge about the associated benefits. We provide a systematic assessment of the effects of TU on self-insurance and self-protection decisions. TU affects the optimal level of risk mitigation via two channels: a preference channel and a technology channel. We identify conditions that yield unambiguous comparative statics of TU at the extensive margin, for FSD improvements and at the intensive margin. These conditions involve prudence, relative risk aversion and relative prudence as well as several new measures of technological efficacy. We highlight cases where TU raises the optimal level of risk mitigation, consistent with the precautionary principle. Our theory has implications in various fields of application, which we demonstrate via selected topics in preventive healthcare, insurance demand and climate change.
- Mental Health Changes and the Willingness to Take Risks, with Andreas Richter and Petra Steinorth.
Abstract: We analyze the impact of mental health changes on individuals’ willingness to take risks utilizing the nationally representative, longitudinal Socio Demographic Panel dataset of the German population. We employ regression-adjusted matching to identify the impact of mental health changes on individuals’ willingness to take risks. We find that mental health shocks significantly decrease the willingness to take risks. The impact is at least three times as high as that of physical health shocks. We also find that mental health improvements increase the willingness to take risks significantly, while physical health improvements have a similar, but weaker effect. We also use the onset of diagnosed depression as an alternative definition for mental health shocks and obtain very consistent results. Our findings are relevant for better understanding the economic decision making of the large number of individuals with mental health issues. Our results also provide empirical support for the theoretical concepts of cross-DARA and cross-prudence.