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The influence of the Ratio Bias phenomenon on the elicitation of Standard Gamble utilities

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  • Jose Luis Pinto-Prades

    () (Department of Economics, Universidad Pablo de Olavide)

  • Jorge E. Martinez Perez

    () (University of Murcia)

  • Jose María Abellán Perpiñán

    () (University of Murcia)

Abstract

This paper tests whether logically equivalent risk formats can lead to different health state utilities elicited by means of the standard gamble (SG) method. We compare SG utilities elicited when probabilities are framed in terms of frequencies with respect to 100 people in the population (i.e., X out of 100) with SG utilities elicited for frequencies with respect to 1,000 people in the population (i.e., Y out of 1,000). We found that utilities were significant higher when success and failure probabilities were framed as frequencies type “Y out of 1,000” rather than as frequencies type “X out of 100”. This framing effect, known as Ratio Bias, may have important consequences in resource allocation decisions.

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File URL: http://www.upo.es/serv/bib/wps/econ0616.pdf
File Function: First version, 2006
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Bibliographic Info

Paper provided by Universidad Pablo de Olavide, Department of Economics in its series Working Papers with number 06.16.

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Length: 28 pages
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:pab:wpaper:06.16

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Keywords: Framing effect; risk format; standard gamble; health state; dual-process theories.;

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  1. Bostic, Raphael & Herrnstein, R. J. & Luce, R. Duncan, 1990. "The effect on the preference-reversal phenomenon of using choice indifferences," Journal of Economic Behavior & Organization, Elsevier, vol. 13(2), pages 193-212, March.
  2. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  3. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
  4. Bleichrodt, Han, 2001. " Probability Weighting in Choice under Risk: An Empirical Test," Journal of Risk and Uncertainty, Springer, vol. 23(2), pages 185-98, September.
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