The internal consistency of the standard gamble: tests after adjusting for prospect theory
AbstractThis article reports a study that tests whether the internal consistency of the standard gamble can be improved upon by incorporating loss weighting and probability transformation parameters in the standard gamble valuation procedure. Five alternatives to the standard EU formulation are considered: (1) probability transformation within an EU framework; and, within a prospect theory framework, (2) loss weighting and full probability transformation, (3) no loss weighting and full probability transformation, (4) loss weighting and no probability transformation, and (5) loss weighting and partial probability transformation. Of the five alternatives, only the prospect theory formulation with loss weighting and no probability transformation offers an improvement in internal consistency over the standard EU valuation procedure.
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Bibliographic InfoPaper provided by London School of Economics and Political Science in its series Open Access publications from London School of Economics and Political Science with number http://eprints.lse.ac.uk/159/.
Date of creation: 2003
Date of revision:
Publication status: Published in Journal of health economics (2003) v.22, p.659-674
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