Zainab Shahid

259113
İLHAN CAN ÖZEN
ECON-404 Health Economics-Section 1
25th November, 2021
The research study on ‘the effects of uncertainty in demand’ by Picone, Uribe and Wilson talk about the
linkages between how much an individual spends on their medical treatment and their household
expenditure and their choice to focus investing on their health or income. It recognizes the impact
uncertainty causes when individuals fall sick and how it directly effects the demand of medical treatment
and individuals preference to invest on their health and assets with the progression of retirement age. 
To describe the characteristics of a rational individual they have employed a simple version of
the Grossman household production function. The report concludes that old age individuals react to
uncertainty through reducing their anticipated utility across life via choosing medical treatment plans and
consumption expenditures in specific time periods to facilitate risk aversion. Throughout the paper they
have investigated these trends amongst people having various levels of risk aversion. The nature of
uncertainty that exists when it comes to health unlike household consumption patterns is very
unpredictable. The chances of person catching flu in a moth is difficult to estimate rather than the number
of eggs she consumes in a day.
This study uses a person's healthcare expenditures to make the best judgement about one's medical
spending pattern. Since the model did not have any constant spending pattern so it the findings aren’t
analytical since there is little explanation or evidence to make any judgments. So they have used the
numerical approach to find link amongst the dependent variables, individual household consumption and
expense on health care along with the independent variables. To evaluate the consequences of
unpredictability, they have tweaked a few variables and generated temporal routes to  make comparisons
with the earlier versions. Which gave them the benefit to define the reaction to uncertainty like a trend of
prevention strategies instead of a modification in medical treatment.
The study assumes that post-retirement people opt for a consumption level which increases
their estimated life expectancy value with respect to their well-being and income. Preventive care,
remedies for common disorders improves health, for instance taking into consideration the residual
consequences of previous shocks, are examples of such expenditures for the elderly. A health shock
generates a surge in demand for medical treatment to meet a particular, acute need. In this model, medical
therapy right after heart attack, fractured bones, or any other severe disease or wound tends to have a high
marginal product.
To conclude the study states that when faced with uncertainty, older people would take preventive
measures to smooth their projected usefulness over time. In earlier days, the trend of cautious/preventive
actions meant an increased spending on healthcare expenses followed by a decreased level of spending on
consumption of goods and services. The stock of health capital will constantly rise as uncertainty rises.
The bigger the influence, the longer will be an individual’s life expectancy. However the uncertainty may
have a beneficial or negative impact on savings. An individual’s savings tend to increase given the level
of consumption forgone is higher than or lesser than the increased healthcare costs. Increases in the level
of wellbeing is connected with the person's level of relative risk aversion since a more risk averse person
tends to have a higher loss in their anticipated utility when uncertainty increases.