People deny health risks, invest too little in disease prevention, and are highly sensitive to the price of preventative health care, especially in developing countries. Moreover, private sector R and D spending on developing-country diseases is almost non-existent. To explain these empirical observations, I propose a model of motivated belief formation, in which an agent\'s decision to engage in health risk denial balances the psychological benefits of reduced anxiety with the physical cost of underprevention. I use the model to study firms\' price-setting behaviour and incentive to innovate. I also show that tax-funded prevention subsidies are welfare enhancing.
health risk denial optimal expectations motivated beliefs disease prevention self-protection