Do Health Shocks Affect Preventive Behavior

This paper empirically examines the effect of new information on individual perceptions about the risk of disease and on preventive health behavior. Specifically, beliefs about the risk of pneumonia and vaccine demand among elderly persons is studied. Pneumonia and influenza together are the sixth leading cause of death among the elderly in the United States. Despite such high risk, vaccination rates remain low among this population. While several factors may affect an individual's decision to vaccinate, subjective beliefs about the risk of infection are an important determinant. I consider a simple Bayesian updating model where new information arrives in the form of exogenous health shocks related to pneumonia and influenza and examine whether individuals update their beliefs in response to these shocks. Next, I study whether these health shocks have a corresponding effect on demand for vaccination. Consumer learning is an important issue in markets characterized by imperfect information, e.g, health care markets. Earlier studies have found strong evidence of learning in the context of quality of health care, effectiveness of treatment and other health risks. They also find considerable heterogeneity in individual responses to new information. This paper extends this literature to preventive health behaviors. I focus on Medicare beneficiaries older than 65 years and use self-reported data from the Medicare Current Beneficiary Surveys (MCBS) and associated Medicare claims. The MCBS is a rotating panel and the panel structure of the data permits identification of the effect of new information on beliefs and behavior. Answers to a survey question about why a person did not get a pneumonia shot is used to measure perceptions about the risk of infection. Health shocks are identified from Medicare claims with diagnoses of influenza or pneumonia. Variation in the prevalence of pneumonia and the infectious nature of the disease allows me to model these shocks as exogenous. I find substantial heterogeneity across individuals - those who choose to vaccinate tend to be older and more educated than those who do not. The presence of certain chronic conditions is also a strong predictor of vaccination status. To identify learning, I estimate the effect of health shocks on perceptions, controlling for prior perceptions. To account for the endogeneity of lagged perceptions, I use methods similar to the Arellano-Bond estimator. I find strong evidence of learning - individuals who experience health shocks are less likely to report that they think they are not at risk of infection. This effect is significant for both pneumonia specific health shocks and general respiratory illnesses. Since the pneumonia shot is usually taken only once in a person's lifetime, I estimate a proportional hazards model accounting for unobserved heterogeneity. I find that experiencing a health shock significantly increases the hazard of vaccinating. The effect of a pneumonia or influenza shocks is stronger than that of a general respiratory shock. Disease prevalence also affects vaccine demand; however, this effect is substantially smaller than that of a health shock.