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Reference-dependent preferences and loss aversion: A discrete choice experiment in the health-care sector

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  • Einat Neuman
  • Shoshona Neuman
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    Abstract

    This study employs a Discrete Choice Experiment (DCE) in the health-care sector to test the loss aversion theory that is derived from reference-dependent preferences: The absolute subjective value of a deviation from a reference point is generally greater when the deviation represents a loss than when the same-sized change is perceived as a gain. As far as is known, this paper is the first to use a DCE to test the loss aversion theory. A DCE is a highly suitable tool for such testing because it estimates the marginal valuations of attributes, based on\textit{ deviations from a reference point} (a constant scenario). Moreover, loss aversion can be examined for \textit{each attribute separately}. Another advantage of a DCE is that is can be applied to\textit{ non-traded goods with non-tangible attributes}. A health-care event is used for empirical illustration: The loss aversion theory is tested within the context of preference structures for maternity-ward attributes, estimated using data gathered from 3850 observations made by a sample of 542 women who had recently given birth. Seven hypotheses are presented and tested. Overall, significant support for behavioral loss aversion theories was found. %JEL codes: D01, D12, I19

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    Bibliographic Info

    Article provided by Society for Judgment and Decision Making in its journal Judgment and Decision Making.

    Volume (Year): 3 (2008)
    Issue (Month): (February)
    Pages: 162-173

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    Handle: RePEc:jdm:journl:v:3:y:2008:i::p:162-173

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    Keywords: preferences; attributes; loss aversion; reference dependence; discrete choice experiment; maternity-wards.;

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