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Prospect theory in the health domain: A quantitative assessment

  • Arthur E. Attema

    (Erasmus School of Economics - Erasmus University Rotterdam)

  • Werner B.F. Brouwer

    (Erasmus School of Economics - Erasmus University Rotterdam)

  • Olivier L’haridon

    (CREM - Centre de Recherche en Economie et Management - CNRS - Université de Caen Basse-Normandie - UR1 - Université de Rennes 1)

It is well-known that expected utility (EU) has empirical deficiencies. Cumulative prospect, theory (CPT) has developed as an alternative with more descriptive validity. However, CPT's full, function had not yet been quantified in the health domain. This paper is therefore the first to, simultaneously measure utility of life duration, probability weighting, and loss aversion in this domain., We observe loss aversion and risk aversion for gains and losses, which for gains can be explained by, probabilistic pessimism. Utility for gains is almost linear. For losses, we find less weighting of, probability 1/2 and concave utility. This contrasts with the common finding of convex utility for, monetary losses. However, CPT was proposed to explain choices among lotteries involving monetary, outcomes. Life years are arguably very different from monetary outcomes and need not generate, convex utility for losses. Moreover, utility of life duration reflects discounting, causing concave utility.

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Paper provided by HAL in its series Post-Print with number halshs-00866788.

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Date of creation: Dec 2013
Date of revision:
Publication status: Published in Journal of Health Economics, Elsevier, 2013, 32 (6), pp.1057-1065. <10.1016/j.jhealeco.2013.08.006>
Handle: RePEc:hal:journl:halshs-00866788
DOI: 10.1016/j.jhealeco.2013.08.006
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