Economic Research Initiative on the Uninsured Working Paper Series BELIEFS ABOUT FUTURE HEALTH AND THE DEMAND FOR HEALTH AND HEALTH INSURANCE

Beliefs about future health should play an important role in determining current health decisions. In theory, the direction of the effect of differences in expectations for longevity on health investments is unclear. Greater optimism may make current health investments either more or less appealing. OLS estimates using data from the Health and Retirement Study show that beliefs about longevity are only weakly associated with current health decisions after conditioning a number of other demographic and economic characteristics. Problems of reverse causality and omitted variables imply that these OLS estimates may be misleading. An individual’s index of general optimism, measured as the tendency to answer questions about macroeconomic and policy events optimistically, is not subject to the reverse causality problem. There is a statistically significant and relatively large positive association between general optimism and most health investments. As an instrument for beliefs about future health, however, the index of optimism is weak. Therefore, IV estimates indicating that more optimistic beliefs about future health substantially increase the likelihood of making most health investments are difficult to interpret.