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Reference-Dependent Preferences and Loss Aversion: A Discrete Choice Experiment In the Health-Care Sector

Author

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  • Neuman, Einat
  • Neuman, Shoshana

Abstract

A Discrete Choice Experiment (DCE) in the health-care sector is used 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 appears to be a highly suitable tool for this testing because it estimates the marginal valuations of attributes, based on deviations from a reference point (a constant scenario). Moreover, loss aversion can be examined for each attribute separately. A DCE can also be applied to 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 entailing 3850 observations from a sample of 542 women who recently gave birth. Seven hypotheses are presented and tested. Overall, significant support for behavioural loss aversion theories was found.

Suggested Citation

  • Neuman, Einat & Neuman, Shoshana, 2007. "Reference-Dependent Preferences and Loss Aversion: A Discrete Choice Experiment In the Health-Care Sector," CEPR Discussion Papers 6616, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:6616
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    More about this item

    Keywords

    attributes; Discrete Choice Experiment; loss aversion; maternity-wards; preferences; reference-dependence;

    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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