Long-term health investment when people underestimate their adaptation to old age-related health problems

This paper explores in a two-period model the economic implications of people’s tendency to underestimate their ability to adapt to age-related health problems. We model this misperception by assuming that the individual underestimates his future subjective health. Under standard assumptions, we show that, when people allocate their resources during their youth between present consumption, savings, and health investment, they invest more in health as long as the magnitude of the cross-marginal utility of health and consumption is not too negative.