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A new explanation for the difference between time trade-off utilities and standard gamble utilities

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  • Han Bleichrodt

    (iMTA|iBMG, Erasmus University, Rotterdam, The Netherlands)

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    Abstract

    This paper gives a new explanation for the systematic disparity between standard gamble (SG) utilities and time trade-off (TTO) utilities. The common explanation, which is based on expected utility, is that the disparity is caused by curvature of the utility function for duration. This explanation is, however, incomplete. People violate expected utility and these violations lead to biases in SG and TTO utilities. The paper analyzes the impact on SG and TTO utilities of three main reasons why people violate expected utility: probability weighting, loss aversion, and scale compatibility. In the SG, the combined effect of utility curvature, probability weighting, loss aversion, and scale compatibility is an upward bias. In the TTO these factors lead both to upward and to downward biases. This analysis can also explain the tentative empirical finding that the TTO better describes people's preferences for health than the SG. Copyright © 2002 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/hec.688
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

    Volume (Year): 11 (2002)
    Issue (Month): 5 ()
    Pages: 447-456

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    Handle: RePEc:wly:hlthec:v:11:y:2002:i:5:p:447-456

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    Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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    Cited by:
    1. Sylvie M. C. van Osch & Anne M. Stiggelbout, 2008. "The construction of standard gamble utilities," Health Economics, John Wiley & Sons, Ltd., vol. 17(1), pages 31-40.
    2. F. E. van Nooten & X. Koolman & W. B. F. Brouwer, 2009. "The influence of subjective life expectancy on health state valuations using a 10 year TTO," Health Economics, John Wiley & Sons, Ltd., vol. 18(5), pages 549-558.
    3. Arthur E. Attema & Werner B. F. Brouwer, 2008. "Can we fix it? Yes we can! But what? A new test of procedural invariance in TTO-measurement," Health Economics, John Wiley & Sons, Ltd., vol. 17(7), pages 877-885.
    4. Attema, Arthur & Brouwer, Werner, 2012. "Deriving time discounting correction factors for TTO tariffs," MPRA Paper 37002, University Library of Munich, Germany.
    5. Attema, Arthur & Brouwer, Werner, 2012. "In search of a preferred preference elicitation method: A test of the internal consistency of choice and matching tasks," MPRA Paper 36100, University Library of Munich, Germany.
    6. Jose Mª Abellán Perpiñán & Fernando Ignacio Sánchez Martínez & Jorge Eduardo Martínez Pérez & Ildefonso Méndez Martínez, 2009. "The QALY model wich came in from a general population survey: roughly multiplicative, broadly nonlinear and sometimes contex-dependt," Economic Working Papers at Centro de Estudios Andaluces E2009/04, Centro de Estudios Andaluces.
    7. Attema, Arthur E. & Brouwer, Werner B.F., 2009. "The correction of TTO-scores for utility curvature using a risk-free utility elicitation method," Journal of Health Economics, Elsevier, vol. 28(1), pages 234-243, January.
    8. John Brazier & Donna Rowen & Yaling Yang & Aki Tsuchiya, 2012. "Comparison of health state utility values derived using time trade-off, rank and discrete choice data anchored on the full health-dead scale," The European Journal of Health Economics, Springer, vol. 13(5), pages 575-587, October.
    9. Julie Ratcliffe & John Brazier & Aki Tsuchiya & Tara Symonds & Martin Brown, 2009. "Using DCE and ranking data to estimate cardinal values for health states for deriving a preference-based single index from the sexual quality of life questionnaire," Health Economics, John Wiley & Sons, Ltd., vol. 18(11), pages 1261-1276.
    10. Floortje van Nooten & Werner Brouwer, 2004. "The influence of subjective expectations about length and quality of life on time trade-off answers," Health Economics, John Wiley & Sons, Ltd., vol. 13(8), pages 819-823.
    11. Craig., Benjamin M. & Busschbach, Jan J.V., 2011. "Revisiting United States valuation of EQ-5D states," Journal of Health Economics, Elsevier, vol. 30(5), pages 1057-1063.
    12. Anne Spencer, 2004. "The implications of linking questions within the SG and TTO methods," Health Economics, John Wiley & Sons, Ltd., vol. 13(8), pages 807-818.
    13. P. Stalmeier & A. Verheijen, 2013. "Maximal endurable time states and the standard gamble: more preference reversals," The European Journal of Health Economics, Springer, vol. 14(6), pages 971-977, December.
    14. L. M. Lamers & C. A. M. Bouwmans & A. van Straten & M. C. H. Donker & L. Hakkaart, 2006. "Comparison of EQ-5D and SF-6D utilities in mental health patients," Health Economics, John Wiley & Sons, Ltd., vol. 15(11), pages 1229-1236.
    15. Brazier, J, 2005. "Current state of the art in preference-based measures of health and avenues for further research," MPRA Paper 29762, University Library of Munich, Germany.
    16. Nick Kontodimopoulos & Michalis Argiriou & Nikolaos Theakos & Dimitris Niakas, 2011. "The impact of disease severity on EQ-5D and SF-6D utility discrepancies in chronic heart failure," The European Journal of Health Economics, Springer, vol. 12(4), pages 383-391, August.
    17. Gandjour, Afschin & Chernyak, Nadja, 2011. "A new prize system for drug innovation," Health Policy, Elsevier, vol. 102(2), pages 170-177.
    18. Brazier, J & Rowen, D & Yang, Y & Tsuchiya, A, 2009. "Using rank and discrete choice data to estimate health state utility values on the QALY scale," MPRA Paper 29891, University Library of Munich, Germany.
    19. Marjon Pol & Larissa Roux, 2005. "Time preference bias in time trade-off," The European Journal of Health Economics, Springer, vol. 6(2), pages 107-111, June.
    20. Arthur Attema & Werner Brouwer, 2012. "The way that you do it? An elaborate test of procedural invariance of TTO, using a choice-based design," The European Journal of Health Economics, Springer, vol. 13(4), pages 491-500, August.
    21. Valerie Seror, 2008. "Fitting observed and theoretical choices - women's choices about prenatal diagnosis of Down syndrome," Health Economics, John Wiley & Sons, Ltd., vol. 17(5), pages 557-577.
    22. Anne Spencer, 2003. "The TTO method and procedural invariance," Health Economics, John Wiley & Sons, Ltd., vol. 12(8), pages 655-668.
    23. Afschin Gandjour, 2008. "Incorporating feelings related to the uncertainty about future health in utility measurement," Health Economics, John Wiley & Sons, Ltd., vol. 17(10), pages 1207-1213.

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