Managing Influenza Vaccination: The Role of Bounded Rationality

Abstract

Problem Definition: Under the assumption of full rationality, the existing literature shows that self-interested individuals ignore the social benefit of protecting others when making influenza vaccination decisions (positive externality), which results in social welfare loss. In this paper, we study the impact of individual bounded rationality in influenza vaccination settings. Academic/Practical Relevance: We examine the commonly used vaccination policies in practice such as subsidization and taxation and provide managerial guidelines for a social planner. Methodology: We develop a simple game-theoretic model, in which individuals boundedly rationally estimate the vaccinated fraction of the population through anecdotal reasoning. We characterize individuals' optimal vaccination decisions and the social planner's optimal subsidization and taxation policies. Results: We find that individual bounded rationality may lead to a positive externality improving social welfare. When the zero-risk vaccination fraction is low and the vaccination cost is at a particular level, the negative effect of self-interested individuals' vaccination decisions could be completely eliminated because of bounded rationality and thus the socially optimal welfare is achieved. In sharp contrast to the setting of full rationality, we show that the optimal social welfare may never be achieved by any subsidization or taxation policy under individual bounded rationality. Managerial Implications: We demonstrate the welfare loss by ignoring individual bounded rationality when implementing a vaccination policy. The social planner should consider the level of individual bounded rationality when using subsidization or taxation in practice. We find that the social planner should induce a particular level of accuracy in estimating the vaccinated fraction for the individuals when the vaccination cost is sufficiently low to achieve the socially optimal welfare by subsidization or taxation; otherwise, inducing individuals to obtain more accurate estimation of the vaccinated fraction is always recommended.