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

  • Neuman, Einat


    (Tel Aviv University)

  • Neuman, Shoshana


    (Bar-Ilan University)

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 behavioral loss aversion theories was found.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3238.

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Length: 23 pages
Date of creation: Dec 2007
Date of revision:
Publication status: published in: Judgment and Decision Making, 2008, 3(2), 162-173
Handle: RePEc:iza:izadps:dp3238
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