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The predictive validity of prospect theory versus expected utility in health utility measurement

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  • Abellan-Perpiñan, Jose Maria
  • Bleichrodt, Han
  • Pinto-Prades, Jose Luis

Abstract

Most health care evaluations today still assume expected utility even though the descriptive deficiencies of expected utility are well known. Prospect theory is the dominant descriptive alternative for expected utility. This paper tests whether prospect theory leads to better health evaluations than expected utility. The approach is purely descriptive: we explore how simple measurements together with prospect theory and expected utility predict choices and rankings between more complex stimuli. For decisions involving risk prospect theory is significantly more consistent with rankings and choices than expected utility. This conclusion no longer holds when we use prospect theory utilities and expected utilities to predict intertemporal decisions. The latter finding cautions against the common assumption in health economics that health state utilities are transferable across decision contexts. Our results suggest that the standard gamble and algorithms based on, should not be used to value health.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 28 (2009)
Issue (Month): 6 (December)
Pages: 1039-1047

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Handle: RePEc:eee:jhecon:v:28:y:2009:i:6:p:1039-1047

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Web page: http://www.elsevier.com/locate/inca/505560

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Keywords: Health utility measurement Prospect theory Expected utility Standard gamble Time trade-off;

References

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  2. Richardson, J., 1994. "Cost utility analysis: What should be measured?," Social Science & Medicine, Elsevier, vol. 39(1), pages 7-21, July.
  3. Han Bleichrodt & Jose Luis Pinto & Peter P. Wakker, 2001. "Making Descriptive Use of Prospect Theory to Improve the Prescriptive Use of Expected Utility," Management Science, INFORMS, vol. 47(11), pages 1498-1514, November.
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  15. Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
  16. Gafni, Amiram & Birch, Stephen & Mehrez, Abraham, 1993. "Economics, health and health economics: HYEs versus QALYs," Journal of Health Economics, Elsevier, vol. 12(3), pages 325-339, October.
  17. Han Bleichrodt & Jose Luis Pinto, 2000. "A Parameter-Free Elicitation of the Probability Weighting Function in Medical Decision Analysis," Management Science, INFORMS, vol. 46(11), pages 1485-1496, November.
  18. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
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Cited by:
  1. Eva Rodríguez Míguez & José María Abellán Perpiñán & José Carlos Álvarez Villamarín & José Manuel González Martínez & Antonio Rodríguez Sampayo, 2013. "Development of a new preference-based instrument to measure dependency," Working Papers 1301, Universidade de Vigo, Departamento de Economía Aplicada.
  2. Jose-Luis Pinto-Prades & Jose-Maria Abellan-Perpiñan, 2011. "When normative and descriptive diverge: how to bridge the difference," Working Papers 11.06, Universidad Pablo de Olavide, Department of Economics.
  3. Attema, Arthur & Brouwer, Werner & l'Haridon, Olivier, 2013. "Prospect theory in the health domain: a quantitative assessment," MPRA Paper 44207, University Library of Munich, Germany.
  4. Arthur E. Attema & Werner B.F. Brouwer & Olivier l'Haridon, 2013. "A quantification of prospect theory in the health domain," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201321, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  5. Attema, Arthur E. & Brouwer, Werner B.F., 2012. "A test of independence of discounting from quality of life," Journal of Health Economics, Elsevier, vol. 31(1), pages 22-34.
  6. Attema, Arthur & Brouwer, Werner, 2012. "Deriving time discounting correction factors for TTO tariffs," MPRA Paper 37002, University Library of Munich, Germany.

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