If somebody has a 50/50 shot at winning $1 million or can take $500,000 for certain, what will he do? A risk neutral person would be indifferent. But most people's risk aversion will make them eager to take the sure thing. People are extremely risk averse when it comes to health care precisely because the stakes are so high.That was McCardle quoting Jay Cost. But McArdle suggest that is not risk aversion that makes people leery of the health care overhaul, but loss aversion.
Reconfigure Cost's scenario and you would get a different result. If someone has $300,000 in hand and has a 50/50 shot of winning a $1 million with no cost, most people would take the risk. If the scenario was, you have a 50/50 chance of winning $1 million or a guaranteed opportunity for $500,000, but no cost, the risk adverse person would generally take the $500,000 in order to avoid the possibility of not getting anything. But what if the chance to win $1 million or take $500,000 guaranteed cost $300,000. Even taking the guaranteed $500,000 means a net 33% loss. I don't think anyone would take that risk or guaranteed loss.
That is what we are facing with health care. Most people like their health care. They may not like the means by which we are paying for the health care (which is the real subject of the debate), but they are satisfied with the level and quality of care they get. If you give people the chance of Cadillac level health care (but not a guaranteed chance) or their current care guaranteed, I think most people will stick with their current care out of fear of unknown. This is the $1 million chance or $500,000 guaranteed case. But if you tell people that the cost of this opportunity is their current health care quality--you are less likely to see people support the idea.
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