A paper by Prof Madhuri Saripalle, Professor of Economics at IFMR GSB, Krea University was accepted for poster presentation at the Annual meeting of the American Economic Association, held at San Antonio, Texas on Jan 5-7, 2024. Titled Testing and Risk attitude under incomplete information: A game theoretic perspective, the work has been co-authored with Dr Vijaya C Subramanian.
This study investigates the critical role of testing in combating the COVID-19 pandemic, employing a game theory framework to model decision-making processes for both governmental authorities and individuals under information asymmetry. The population is categorized into two groups based on immunity status (high immunity – type 1, and low immunity – type 2), known only to individuals and their engagement in risk-prone or risk-averse activities. The government holds a prior belief derived from a probability distribution regarding immunity status and faces a strategic decision of selecting one of three testing approaches: universal testing, hybrid testing, or no testing, each with associated expected costs. The study finds that increased benefits of risk-averse behaviour among type 2 individuals relative to type 1 lead to a higher odds ratio of immune individuals. Policy should aim at: (a) Implementing a hybrid testing strategy and (b) Incentivising risk-averse behaviour. In other words, instead of highlighting the costs and penalizing risk prone behaviour, the government should trumpet the benefits of risk averse behaviour.