Risk and Rationality - Effects of contextual risk and cognitive dissonance on (sexual) incentives

The thesis consists of an introductory part and four self-contained papers. Paper [I] theoretically analyzes how the level and uncertainty of future prospects affect incentives to abstain from sexual risk taking in the presence of HIV. The results suggest that, for individuals with limited access to HIV treatment, uncertainty of future health may be an important factor driving unsafe sex practices and support the empirical finding of a weak link between sexual behavior, HIV prevalence, and HIV knowledge in poor countries; therefore suggesting that AIDS policy needs to be calibrated in order to fit within different social contexts. Paper [II] empirically tests the hypothesis derived in paper [I] on young adults in Cape Town, South Africa. In order to adequately measure sexual risk taking we combine a wide range of variables measuring risky sexual behavior such that the maximum information possible is extracted from, and adequate weights are attached to, each measure. This approach differs from studies that commonly use individual measures or arbitrary aggregations. The findings indicate that expected income and health and future uncertainty are significant determinants of current patterns of sexual risk taking. However, the empirical results only provide limited support to a link between expected health and sexual risk taking. Paper [III] theoretically analyzes effects of affect and defensive denial on incentives to engage in sexual risk taking related to HIV. The theoretical approach incorporates ideas from psychology on decision-making processes and risk evaluation, and ideas from economics on utility maximization. The results of the theoretical analysis suggest that the effect of rationalization of personal risk depends on the risk of being HIV positive. Although rationalization causes excessive risk taking behavior for individuals with a relatively low lifetime risk, it may prevent fatalism among individuals whose lifetime risk of HIV is perceived as overwhelming. Paper [IV] theoretically analyzes the role of identity conflict for the evolution of female labor supply over time. The results suggest the fear of becoming an outsider in society may have prevented a complete transition of women from housewives to breadwinners. In addition, our analysis shows that not recognizing that the weights attached to different social identities are endogenous may imply that the long-run effects on labor supply of a higher wage may be underestimated. Keywords: HIV/AIDS, Health risk, Uncertainty, Risk aversion, Self-Control, Time-inconsiste.