Testing models of stochastic choice in health state valuation data
AbstractExpected Utility (EU) theory is the standard economic model of individual preferences under uncertainty. However, observed violations of the axioms of EU have generated interest in the incorporation of a stochastic element into deterministic models of decision-making. Previous empirical investigation of the theories of stochastic choice has involved monetary gambles in risky conditions using convenience samples of students. The aim of this study is to test generalisations of these models in the context of eliciting the preferences of the general public over health states under conditions of certainty. Our findings lend support to the `white noise´ stochastic specification of Hey and Orme (1994) which indicates that the stronger the preferences of an individual, the less likely they are to make a mistake and attach a lower value to their truly preferred alternative. JEL Classification: D0 Key words: Stochastic preferences, utility assessment, expected utility theory.
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Bibliographic InfoPaper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2005017.
Length: 22 pages
Date of creation: Nov 2005
Date of revision: Nov 2005
Stochastic preferences; utility assessment; expected theory;
Find related papers by JEL classification:
- D0 - Microeconomics - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-17 (All new papers)
- NEP-DCM-2007-03-17 (Discrete Choice Models)
- NEP-HEA-2007-03-17 (Health Economics)
- NEP-UPT-2007-03-17 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Selten, Reinhard & Joachim Buchta, 1994. "Experimental Sealed Bid First Price Auctions with Directly Observed Bid Functions," Discussion Paper Serie B 270, University of Bonn, Germany.
- Hey, John D & Orme, Chris, 1994. "Investigating Generalizations of Expected Utility Theory Using Experimental Data," Econometrica, Econometric Society, vol. 62(6), pages 1291-1326, November.
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