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Willingness to pay for reductions in health risks when probabilities are distorted

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  • Han Bleichrodt

    (Erasmus University, Rotterdam, The Netherlands)

  • Louis Eeckhoudt

Abstract

We study the willingness to pay for reductions in health risks when people do not evaluate probabilities linearly, as is commonly assumed in elicitations of willingness to pay, but weight probabilities, as is commonly observed in empirical studies of decision under risk. We show that for the levels of baseline risk typically considered, probability weighting strongly affects willingness to pay estimates and may lead to unstable monetary valuations of health. Copyright © 2005 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/hec.1073
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Bibliographic Info

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

Volume (Year): 15 (2006)
Issue (Month): 2 ()
Pages: 211-214

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Handle: RePEc:wly:hlthec:v:15:y:2006:i:2:p:211-214

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

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  1. 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.
  2. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
  3. Viscusi, W Kip & Evans, William N, 1990. "Utility Functions That Depend on Health Status: Estimates and Economic Implications," American Economic Review, American Economic Association, vol. 80(3), pages 353-74, June.
  4. 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.
  5. Drazen Prelec, 1998. "The Probability Weighting Function," Econometrica, Econometric Society, vol. 66(3), pages 497-528, May.
  6. Quiggin, John & Horowitz, John, 1995. "Time and Risk," Journal of Risk and Uncertainty, Springer, vol. 10(1), pages 37-55, January.
  7. Sloan, Frank A. & Kip Viscusi, W. & Chesson, Harrell W. & Conover, Christopher J. & Whetten-Goldstein, Kathryn, 1998. "Alternative approaches to valuing intangible health losses: the evidence for multiple sclerosis1," Journal of Health Economics, Elsevier, vol. 17(4), pages 475-497, August.
  8. Jones-Lee, Michael W, 1974. "The Value of Changes in the Probability of Death or Injury," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 835-49, July/Aug..
  9. Smith, V Kerry & Desvousges, William H, 1987. "An Empirical Analysis of the Economic Value of Risk Changes," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 89-114, February.
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Cited by:
  1. Henrik Andersson, 2008. "Willingness to Pay for Car Safety: Evidence from Sweden," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 41(4), pages 579-594, December.
  2. Andersson, Henrik, 2008. "Perception of Own Death Risk: A Reassessment of Road-Traffic Mortality Risk," Working Papers 2008:11, Swedish National Road & Transport Research Institute (VTI).
  3. Courbage, Christophe & Rey, Béatrice & Treich, Nicolas, 2013. "Prevention and precaution," TSE Working Papers 13-445, Toulouse School of Economics (TSE).
  4. Nicolas Treich, 2008. "The Value of a Statistical Life under Ambiguity Aversion," CESifo Working Paper Series 2291, CESifo Group Munich.
  5. Gollier, Christian & Hammitt, James & Treich, Nicolas, 2013. "Risk and Choice: A Research Saga," TSE Working Papers 13-444, Toulouse School of Economics (TSE).
  6. Jacoline Bouvy & Just Weemers & Huub Schellekens & Marc Koopmanschap, 2011. "Willingness to Pay for Adverse Drug Event Regulatory Actions," PharmacoEconomics, Springer, vol. 29(11), pages 963-975, November.
  7. Dorte Gyrd-Hansen & Peder Andreas Halvorsen & Ivar S�nb� Kristiansen, 2008. "Willingness-to-pay for a statistical life in the times of a pandemic," Health Economics, John Wiley & Sons, Ltd., vol. 17(1), pages 55-66.

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