Risk management and health investments: A portfolio approach

A common feature of production models of health is that they neglect the importance of uncertainty in health investment decisions. I regard this as a deficit. Given the uncertainty of the effect of health investments, the question arises as to how an individual should allocate his scarce resources of time and money to reach an efficient health behavior. To analyze this central question, the original portfolio theory is applied to health investment decisions. By a portfolio approach to health investments, actions of health care are characterized in terms of bundles of actions. In this way, one can make use of gains of diversifications. Since the portfolio theory considers the correlation between the outcome of actions, it introduces new insights into the effect of health investments. This new approach to investments in health has not only consequences for individual health behavior but is important for health policy-making as well.