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The Ratio Bias Phenomenon: Fact or Artifact?

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Author Info

  • Lefèbvre, Mathieu

    ()
    (CREPP, Université de Liège)

  • Vieider, Ferdinand M.

    ()
    (CNRS, GATE)

  • Villeval, Marie Claire

    ()
    (CNRS, GATE)

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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4546.

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Length: 39 pages
Date of creation: Nov 2009
Date of revision:
Publication status: published in: Theory and Decision , 2011, 71(4), 615-641
Handle: RePEc:iza:izadps:dp4546

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

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Cited by:
  1. Mathieu Lefebvre & Ferdinand Vieider & Marie-Claire Villeval, 2009. "Incentive Effects on Risk Attitude in Small Probability Prospects," Working Papers 0926, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.

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