A quantification of prospect theory in the health domain
AbstractIt is well-known that expected utility (EU) has empirical deficiencies. Prospect theory (PT) has developed as an alternative with more descriptive validity. However, PT’s full function had not yet been quantified in the health domain. This paper is therefore the first to simultaneously measure utility of life duration, probability weighting, and loss aversion in the health domain. We observe loss aversion and risk aversion for gains and losses, which for gains can be explained by probabilistic pessimism. Utility for gains is almost linear. For losses, we find less weighting of probability 1/2 and concave utility. This contrasts with the common finding of convex utility for monetary losses. However, PT was proposed to explain choices among lotteries involving small outcomes. Life years are arguably not ‘small’ and need not generate convex utility for losses. Moreover, utility of life duration reflects discounting, causing concave utility. These results are a first step in fitting non-EU models for health-related decisions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS in its series Economics Working Paper Archive (University of Rennes 1 & University of Caen) with number 201321.
Date of creation: Jun 2013
Date of revision:
Contact details of provider:
Postal: CREM (UMR CNRS 6211) – Faculty of Economics, 7 place Hoche, 35065 RENNES Cedex
Phone: 02 23 23 35 47
Fax: (33) 2 23 23 35 99
Web page: http://crem.univ-rennes1.fr/
More information through EDIRC
Postal: CREM (UMR CNRS 6211) - Faculty of Economics, 7 place Hoche, 35065 Rennes Cedex - France
Find related papers by JEL classification:
- D90 - Microeconomics - - Intertemporal Choice - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-15 (All new papers)
- NEP-HEA-2013-07-15 (Health Economics)
- NEP-UPT-2013-07-15 (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.:
- Pinto-Prades, Jose Luis & Loomes, Graham & Brey, Raul, 2009.
"Trying to estimate a monetary value for the QALY,"
Journal of Health Economics,
Elsevier, vol. 28(3), pages 553-562, May.
- Masao Ogaki & Qiang Zhang, 1998.
"Decreasing Relative Risk Aversion and Tests of Risk Sharing,"
98-02, Ohio State University, Department of Economics.
- Ogaki, Masao & Zhang, Qiang, 2001. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometrica, Econometric Society, vol. 69(2), pages 515-26, March.
- Masao Ogaki & Qiang Zhang, 2000. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometric Society World Congress 2000 Contributed Papers 1588, Econometric Society.
- Bleichrodt, Han & Pinto, Jose Luis & Maria Abellan-Perpinan, Jose, 2003.
"A consistency test of the time trade-off,"
Journal of Health Economics,
Elsevier, vol. 22(6), pages 1037-1052, November.
- Han Bleichrodt & José Luis Pinto & José María Abellán-Perpiñán, 2003. "A consistency test of the time trade-off," Economics Working Papers 676, Department of Economics and Business, Universitat Pompeu Fabra.
- Han Bleichrodt & José Luis Pinto & José María Abellán-Perpiñán, 2003. "A consistency test of the time trade-off," Working Papers, Research Center on Health and Economics 676, Department of Economics and Business, Universitat Pompeu Fabra.
- Abellan-Perpiñan, Jose Maria & Bleichrodt, Han & Pinto-Prades, Jose Luis, 2009. "The predictive validity of prospect theory versus expected utility in health utility measurement," Journal of Health Economics, Elsevier, vol. 28(6), pages 1039-1047, December.
- Han Bleichrodt & Jose María Abellán Perpiñán & Jose Luis Pinto-Prades & Ildefonso Méndez-Martínez, 2006.
"Resolving Inconsistencies in Utility Measurement under Risk: Tests of Generalizations of Expected Utility,"
06.19, Universidad Pablo de Olavide, Department of Economics.
- Han Bleichrodt & Jose Maria Abellan-Perpiñan & Jose Luis Pinto-Prades & Ildefonso Mendez-Martinez, 2007. "Resolving Inconsistencies in Utility Measurement Under Risk: Tests of Generalizations of Expected Utility," Management Science, INFORMS, vol. 53(3), pages 469-482, March.
- Han Bleichrodt & José María Abellán-Perpiñan & JoséLuis Pinto & Ildefonso Méndez-Martínez, 2005. "Resolving inconsistencies in utility measurement under risk: Tests of generalizations of expected utility," Economics Working Papers 798, Department of Economics and Business, Universitat Pompeu Fabra.
- Schmidt, Ulrich & Traub, Stefan, 2002. " An Experimental Test of Loss Aversion," Journal of Risk and Uncertainty, Springer, vol. 25(3), pages 233-49, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CODA-POIREY Hélène).
If references are entirely missing, you can add them using this form.