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Testing the descriptive performance of the rank-dependent utility in the domain of health profiles

Author

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  • José M. Abellán Perpiñán

    (Department of Applied Economics, University of Murcia, Murcia, Spain Department of Economics, Center for Health Economics, Pompeu Fabra University, Barcelona, Spain)

  • José Luis Pinto Prades

    (Department of Applied Economics, University of Murcia, Murcia, Spain Department of Economics, Center for Health Economics, Pompeu Fabra University, Barcelona, Spain)

Abstract

Expected utility theory (EUT) has been challenged as a descriptive theory in many contexts. The medical decision analysis context is not an exception. Several researchers have suggested that rank dependent utility theory (RDUT) may accurately describe how people evaluate alternative medical treatments. Recent research in this domain has addressed a relevant feature of RDU models - probability weighting - but to date no direct test of this theory has been made. This paper provides a test of the main axiomatic difference between EUT and RDUT when health profiles are used as outcomes of risky treatments. Overall, EU best described the data. However, evidence on the editing and cancellation operation hypothesized in Prospect Theory and Cumulative Prospect Theory was apparent in our study. We found that RDU outperformed EU in the presentation of the risky treatment pairs in which the common outcome was not obvious. The influence of framing effects on the performance of RDU and their importance as a topic for future research is discussed.

Suggested Citation

  • José M. Abellán Perpiñán & José Luis Pinto Prades, 2001. "Testing the descriptive performance of the rank-dependent utility in the domain of health profiles," Spanish Economic Review, Springer;Spanish Economic Association, vol. 3(3), pages 177-191.
  • Handle: RePEc:spr:specre:v:3:y:2001:i:3:p:177-191
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    Keywords

    Expected utility; health outcomes; medical decision-making; QALYs; rank-dependent utility;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • I1 - Health, Education, and Welfare - - Health

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