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The Ratio Bias Phenomenon : Fact or Artifact ?

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Author Info

  • Mathieu Lefebvre

    (CREPP - Center of Research in Public Economics and Population Economics - Université de Liège)

  • Ferdinand Vieider

    (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

  • Marie-Claire Villeval

    (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

Abstract

The ratio bias––according to which individuals prefer to bet on probabilities expressed as a ratio of large numbers to normatively equivalent or superior probabilities expressed as a ratio of small numbers––has recently gained momentum, with researchers especially in health economics emphasizing the policy importance of the phenomenon. Although the bias has been replicated several times, some doubts remain about its economic significance. Our two experiments show that the bias disappears once order effects are excluded, and once salient and dominant incentives are provided. This holds true for both choice and valuation tasks. Also, adding context to the decision problem does not change this outcome. No ratio bias could be found in between-subject tests either, which leads us to the conclusion that the policy relevance of the phenomenon is doubtful at best.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number halshs-00435956.

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Date of creation: 2011
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Publication status: Published, Theory and Decision, 2011, 71, 4, pp. 615-641
Handle: RePEc:hal:journl:halshs-00435956

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Keywords: ratio bias; financial incentives; error rates; experiment;

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Cited by:
  1. Mathieu Lefebvre & Ferdinand Vieider & Marie Claire Villeval, 2010. "Incentive Effects on Risk Attitude in Small Probability Prospects," Post-Print, HAL halshs-00550469, HAL.
  2. Chen Li & Zhihua Li & Peter Wakker, 2014. "If nudge cannot be applied: a litmus test of the readers’ stance on paternalism," Theory and Decision, Springer, Springer, vol. 76(3), pages 297-315, March.

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