Gigi Foster,  Paul Frijters & David W. Johnston, School of Economics Discussion Paper No. 451 January 2012, School of Economics, The University of Queensland. Australia.


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In this paper we compare three theories of utility formation: prospect theory, regret theory, and a combination which additionally allows for direct utility flows from positive expectations. We then test which of these theories best explains actual connections between health and welfare over time, using a rich Australian data set on health expectations, economic behavior, and well-being. We find evidence supporting a much stronger utility impact of health expectations than of regret regarding health. Our results support the idea than unless individuals are able to alter their future health outcomes by changing their behavior, a benevolent health care provider should only provide good information about the future.