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How Your Neighbor Influences You Health Care Decisions

2012 November 19
by Eric Horowitz

It’s not surprising that social norms influence consumer behavior. When everybody else wants to spend $400 on the new iPad, it makes sense that you’ll be more willing to spend $400 on a new iPad. The question is, how far does this social influence extend?

A new study led by Ivo Vlaev examines how social norms influence spending on a good that ought to be on the opposite end of the social influence spectrum from consumer electronics: pain reduction. If somebody stabs you in the foot with a steak knife, you would assume your desire to alleviate that pain has nothing to do with the decision of somebody else who suffered the same stabbing. But that’s not what Vlaev and his team found. When it came to avoiding a painful electric shock, people didn’t just make decisions based their own pain, they also took into account how much other people wanted to reduce that same pain.

Participants in the study first rated a series of electric shocks to their arms and legs so that the researchers could determine the intensity levels at which the participant was indifferent between shocks to the two extremities. Participants then joined an auction with two other people in which they could purchase the opportunity to avoid a future dosage of either of the two equivalent shocks. The researches used a “second-price” auction in which the highest bidder pays the amount of the 2nd highest bid. This incentivizes bidding your *true* valuation of avoiding the pain rather than making a strategic bid based on what other people are likely to do.

Now for the experimental manipulation: Unbeknownst to the the participants, the other “people” in the auction were computer-generated bids designed to follow a certain pattern. For some participants the bids to avoid one type of pain (i.e. arm or leg) remained low while the bids for the other type of pain steadily increased. For other participants the bids for one type of pain remained high while bids for the other type of pain steadily decreased. Despite the movement of the other bids, because the two shocks caused participants an equivalent amount of pain, the amount they were willing to bid to avoid the shocks should have remained  the same.

The key word there is should. The researchers found that when the bids to avoid a certain type of pain rose, participants also raised their bids. When bids fell, participants lowered their bids accordingly. But because of the “second-price” nature of the auction the only reason to shift your bid is if avoiding the pain becomes more or less valuable to you. Since nothing changed the intrinsic value of avoiding the pain, the results suggest that a person’s desire to avoid a certain type of pain is influenced by extrinsic factors such as social observations. When other people are willing to pay more to avoid an ailment it makes you willing to pay more to avoid the same ailment.

The fact that our desire to alleviate pain is subject to social influences has important implications for health care systems. For example, if it seems like back pain is something you’re expected to live with, people might be less willing to seek treatment for it. Alternatively, people might over-consume treatment for ailments caused by cancer because social mores are more likely to suggest that you should battle cancer with every possible treatment regardless of cost.

On a more positive note, the social nature of medical decisions provides a channel for behavioral economists to nudge health care purchases in the right direction. For example, if a certain ailment is particularly harmful, a well-targeted PR campaign could increase the degree to which people seek treatment for it by publicizing a common desire to get it treated. The study’s findings also highlight the benefits of continuing to move away from a fee-for-service model and towards one where people purchase a health outcome. This won’t fully address the problem of inefficient purchases — for example, somebody might still purchase the “no cancer side effects” outcome rather than the pain-minimizing “no back  pain” outcome — but not having to consider a host of individual procedures should lead to fewer bad decisions at the margin.
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Vlaev, I., Seymour, B., Chater, N., Winston, J., Yoshida, W., Wright, N., Symmonds, M., & Dolan, R. (2012). Prices Need No Preferences: Social Trends Determine Decisions in Experimental Markets for Pain Relief. Health Psychology DOI: 10.1037/a0030372

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