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Penalties and Prospect Theory: Evidence from the Affordable Care Act

by Jolly, Adam

Abstract

The Affordable Care Act was a monumental piece of health legislation, impacting welfare, insurance coverage rates, and medical expenditures. Previous economic studies have documented the exact magnitude of these effects. However, the behavioral mechanics that rendered these efficacious outcomes possible have gone by somewhat undocumented. This thesis addresses this concern, by proposing a theoretical framework derived from prospect theory that analyzes how the individual mandate provision impacted demand for health insurance. This framework is empirically tested on young adults (aged 20-25) with a difference-in-differences linear probability model. Findings are consistent with proposed behavioral theory, suggesting that penalties induce demand for insurance by editing reference points and heightening loss-aversion. Additionally, results imply that young adults have marginally more responsive loss-preferences when compared to control counterparts (aged 27-30). Conclusions drawn from this model provide an increased understanding of young adult decision-making processes with the usage of real evidence.

Note

The author has given permission for this work to be deposited in the Digital Archive of Colorado College.

Colorado College Honor Code upheld.

Includes bibliographical references.

Administrative Notes

The author has given permission for this work to be deposited in the Digital Archive of Colorado College.

Colorado College Honor Code upheld.

Copyright
Copyright restrictions apply.
Publisher
Colorado College Tutt Library
PID
coccc:31021
Digital Origin
born digital
Extent
78 pages : illustrations, map(s)
Thesis
Senior Thesis -- Colorado College
Thesis Advisor
Esther Redmount
Department/Program
Economics and Business
Degree Name
Bachelor of Arts
Degree Type
bachelor
Degree Grantor
Colorado College Tutt Library
Date Issued
2019-05