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Your money and your life: Risk attitudes over gains and losses

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  • Adam Oliver

    (London School of Economics and Political Science)

Abstract

Prospect theory is the most influential descriptive alternative to the orthodox model of rational choice under risk and uncertainty, in terms of empirical analyses of some of its principal parameters and as a consideration in behavioural public policy. Yet the most distinctive implication of the theory—a fourfold predicted pattern of risk attitudes called the reflection effect—has been infrequently studied and with mixed results over money outcomes, and has never been completely tested over health outcomes. This article reports tests of reflection over money and health outcomes defined by life years gained from treatment. With open valuation exercises, the results suggest qualified support for the reflection effect over money outcomes and strong support over health outcomes. However, in pairwise choice questions, reflection was substantially ameliorated over life years, remaining significant only for treatments that offered short additional durations of life.

Suggested Citation

  • Adam Oliver, 2018. "Your money and your life: Risk attitudes over gains and losses," Journal of Risk and Uncertainty, Springer, vol. 57(1), pages 29-50, August.
    • Handle: RePEc:kap:jrisku:v:57:y:2018:i:1:d:10.1007_s11166-018-9284-4
    DOI: 10.1007/s11166-018-9284-4
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    Cited by:

    1. Oliver, Adam, 2023. "A little give and take," LSE Research Online Documents on Economics 111558, London School of Economics and Political Science, LSE Library.
    2. Oliver, Adam, 2021. "Reflecting on reflection: prospect theory, our behaviours, and our environment," LSE Research Online Documents on Economics 111906, London School of Economics and Political Science, LSE Library.
    3. Stefan A. Lipman & Arthur E. Attema, 2019. "Rabin's paradox for health outcomes," Health Economics, John Wiley & Sons, Ltd., vol. 28(8), pages 1064-1071, August.
    4. Han Bleichrodt & Jason N. Doctor & Yu Gao & Chen Li & Daniella Meeker & Peter P. Wakker, 2019. "Resolving Rabin’s paradox," Journal of Risk and Uncertainty, Springer, vol. 59(3), pages 239-260, December.
    5. Oliver, Adam, 2024. "Reflecting on reflection: prospect theory, our behaviors, and our environment," LSE Research Online Documents on Economics 123966, London School of Economics and Political Science, LSE Library.

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