IDEAS home Printed from https://ideas.repec.org/a/wly/hlthec/v28y2019i8p1064-1071.html
   My bibliography  Save this article

Rabin's paradox for health outcomes

Author

Listed:
  • Stefan A. Lipman
  • Arthur E. Attema

Abstract

Many health economic studies assume expected utility maximisation, with typically a concave utility function to capture risk aversion. Given these assumptions, Rabin's paradox (RP) involves preferences over mixed gambles yielding moderate outcomes, where turning down such gambles imply absurd levels of risk aversion. Although RP is considered a classic critique of expected utility, no paper has as of yet fully tested its preferences within individuals. In an experiment we report a direct test of RP in the health domain, which was previously only considered in the economic literature, showing it may have pervasive implications here too. Our paper supports the shift towards alternative, empirically valid models, such as prospect theory, also in the health domain. These alternative models are able to accommodate Rabin's paradox by allowing reference‐dependence and loss aversion.

Suggested Citation

  • 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.
  • Handle: RePEc:wly:hlthec:v:28:y:2019:i:8:p:1064-1071
    DOI: 10.1002/hec.3918
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/hec.3918
    Download Restriction: no

    References listed on IDEAS

    as
    1. F. E. van Nooten & X. Koolman & W. B. F. Brouwer, 2009. "The influence of subjective life expectancy on health state valuations using a 10 year TTO," Health Economics, John Wiley & Sons, Ltd., vol. 18(5), pages 549-558.
    2. van der Pol, Marjon & Ruggeri, Matteo, 2008. "Is risk attitude outcome specific within the health domain?," Journal of Health Economics, Elsevier, vol. 27(3), pages 706-717, May.
    3. Camerer, Colin F & Hogarth, Robin M, 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 7-42, December.
    4. Attema, Arthur E. & Brouwer, Werner B.F. & l’Haridon, Olivier, 2013. "Prospect theory in the health domain: A quantitative assessment," Journal of Health Economics, Elsevier, vol. 32(6), pages 1057-1065.
    5. Arthur E. Attema & Werner B.F. Brouwer & Olivier l'Haridon, 2013. "A quantification of prospect theory in the health domain," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201321, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    6. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    7. Renata S Suter & Thorsten Pachur & Ralph Hertwig & Tor Endestad & Guido Biele, 2015. "The Neural Basis of Risky Choice with Affective Outcomes," PLOS ONE, Public Library of Science, vol. 10(4), pages 1-22, April.
    8. Attema, Arthur E. & Brouwer, Werner B.F. & l’Haridon, Olivier & Pinto, Jose Luis, 2016. "An elicitation of utility for quality of life under prospect theory," Journal of Health Economics, Elsevier, vol. 48(C), pages 121-134.
    9. Galizzi, Matteo M. & Miraldo, Marisa & Stavropoulou, Charitini & van der Pol, Marjon, 2016. "Doctor–patient differences in risk and time preferences: A field experiment," Journal of Health Economics, Elsevier, vol. 50(C), pages 171-182.
    10. 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.
    11. Kairies-Schwarz, Nadja & Kokot, Johanna & Vomhof, Markus & Weßling, Jens, 2017. "Health insurance choice and risk preferences under cumulative prospect theory – an experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 374-397.
    12. 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.
    13. Arthur E. Attema & Han Bleichrodt & Olivier L’Haridon & Patrick Peretti-Watel & Valérie Seror, 2018. "Discounting health and money: New evidence using a more robust method," Journal of Risk and Uncertainty, Springer, vol. 56(2), pages 117-140, April.
    14. Joseph S. Pliskin & Donald S. Shepard & Milton C. Weinstein, 1980. "Utility Functions for Life Years and Health Status," Operations Research, INFORMS, vol. 28(1), pages 206-224, February.
    15. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    16. Oliver, Adam, 2018. "Your money and your life: risk attitudes over gains and losses," LSE Research Online Documents on Economics 88583, London School of Economics and Political Science, LSE Library.
    17. Galizzi, Matteo M. & Miraldo, Marisa & Stavropoulou, Charitini, 2016. "In sickness but not in wealth: field evidence on patients’ risk preferences in the financial and health domain," LSE Research Online Documents on Economics 64764, London School of Economics and Political Science, LSE Library.
    18. Friedrich Breyer & Victor R. Fuchs, 1982. "Risk Attitudes in Health: An Exploratory Study," NBER Working Papers 0875, National Bureau of Economic Research, Inc.
    19. Matthew Rabin, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Econometrica, Econometric Society, vol. 68(5), pages 1281-1292, September.
    20. Floortje van Nooten & Werner Brouwer, 2004. "The influence of subjective expectations about length and quality of life on time trade‐off answers," Health Economics, John Wiley & Sons, Ltd., vol. 13(8), pages 819-823, August.
    21. Harrison, Glenn W. & Lau, Morten I. & Ross, Don & Swarthout, J. Todd, 2017. "Small stakes risk aversion in the laboratory: A reconsideration," Economics Letters, Elsevier, vol. 160(C), pages 24-28.
    22. Anderson, Lisa R. & Mellor, Jennifer M., 2008. "Predicting health behaviors with an experimental measure of risk preference," Journal of Health Economics, Elsevier, vol. 27(5), pages 1260-1274, September.
    23. Matthew Rabin & Richard H. Thaler, 2001. "Anomalies: Risk Aversion," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 219-232, Winter.
    24. Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
    25. John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, vol. 63, pages 309-309.
    26. Emmanuel Kemel & Corina Paraschiv, 2018. "Deciding about human lives: an experimental measure of risk attitudes under prospect theory," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 51(1), pages 163-192, June.
    27. Oliver, Adam, 2003. "A quantitative and qualitative test of the Allais paradox using health outcomes," LSE Research Online Documents on Economics 155, London School of Economics and Political Science, LSE Library.
    28. James Cox & Vjollca Sadiraj & Bodo Vogt & Utteeyo Dasgupta, 2013. "Is there a plausible theory for decision under risk? A dual calibration critique," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(2), pages 305-333, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Chris Sampson’s journal round-up for 5th August 2019
      by Chris Sampson in The Academic Health Economists' Blog on 2019-08-05 11:00:57

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:hlthec:v:28:y:2019:i:8:p:1064-1071. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley Content Delivery). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/5749 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.