ALTERNATIVE MODELS OF CHOICE UNDER UNCERTAINTY AND DEMAND FOR HEALTH-INSURANCE

We test a standard expected utility model and alternative models about how people evaluate risky prospects using data about individuals' pre ferences among health insurance plans. A model that assumes people eva luate gains and losses relative to a reference rather than final outco mes, treat gains and losses asymmetrically, and process certain and un certain outcomes separately provides a better fit than the standard ut ility model. These findings suggest inertia in health insurance plan c hoice and that individuals are more responsive to decreases than to in creases in the price of insurance.