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Reference-dependent preferences and loss aversion: A discrete choice experiment in the health-care sector

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  • Einat Neuman
  • Shoshona Neuman

Abstract

This study employs a Discrete Choice Experiment (DCE) in the health-care sector to test the loss aversion theory that is derived from reference-dependent preferences: The absolute subjective value of a deviation from a reference point is generally greater when the deviation represents a loss than when the same-sized change is perceived as a gain. As far as is known, this paper is the first to use a DCE to test the loss aversion theory. A DCE is a highly suitable tool for such testing because it estimates the marginal valuations of attributes, based on\textit{ deviations from a reference point} (a constant scenario). Moreover, loss aversion can be examined for \textit{each attribute separately}. Another advantage of a DCE is that is can be applied to\textit{ non-traded goods with non-tangible attributes}. A health-care event is used for empirical illustration: The loss aversion theory is tested within the context of preference structures for maternity-ward attributes, estimated using data gathered from 3850 observations made by a sample of 542 women who had recently given birth. Seven hypotheses are presented and tested. Overall, significant support for behavioral loss aversion theories was found. %JEL codes: D01, D12, I19

Suggested Citation

  • Einat Neuman & Shoshona Neuman, 2008. "Reference-dependent preferences and loss aversion: A discrete choice experiment in the health-care sector," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 3, pages 162-173, February.
  • Handle: RePEc:jdm:journl:v:3:y:2008:i::p:162-173
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    References listed on IDEAS

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    More about this item

    Keywords

    preferences; attributes; loss aversion; reference dependence; discrete choice experiment; maternity-wards.;

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I19 - Health, Education, and Welfare - - Health - - - Other

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