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The influence of the Ratio Bias phenomenon on the elicitation of Standard Gamble utilities

Author

Listed:
  • Jose Luis Pinto-Prades

    () (Department of Economics, Universidad Pablo de Olavide)

  • Jorge E. Martinez Perez

    () (University of Murcia)

  • Jose María Abellán Perpiñán

    () (University of Murcia)

Abstract

This paper tests whether logically equivalent risk formats can lead to different health state utilities elicited by means of the standard gamble (SG) method. We compare SG utilities elicited when probabilities are framed in terms of frequencies with respect to 100 people in the population (i.e., X out of 100) with SG utilities elicited for frequencies with respect to 1,000 people in the population (i.e., Y out of 1,000). We found that utilities were significant higher when success and failure probabilities were framed as frequencies type “Y out of 1,000” rather than as frequencies type “X out of 100”. This framing effect, known as Ratio Bias, may have important consequences in resource allocation decisions.

Suggested Citation

  • Jose Luis Pinto-Prades & Jorge E. Martinez Perez & Jose María Abellán Perpiñán, 2006. "The influence of the Ratio Bias phenomenon on the elicitation of Standard Gamble utilities," Working Papers 06.16, Universidad Pablo de Olavide, Department of Economics.
  • Handle: RePEc:pab:wpaper:06.16
    as

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    File URL: http://www.upo.es/serv/bib/wps/econ0616.pdf
    File Function: First version, 2006
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    References listed on IDEAS

    as
    1. Bostic, Raphael & Herrnstein, R. J. & Luce, R. Duncan, 1990. "The effect on the preference-reversal phenomenon of using choice indifferences," Journal of Economic Behavior & Organization, Elsevier, vol. 13(2), pages 193-212, March.
    2. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    3. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
    4. Bleichrodt, Han, 2001. "Probability Weighting in Choice under Risk: An Empirical Test," Journal of Risk and Uncertainty, Springer, vol. 23(2), pages 185-198, September.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Paul C. Price & Teri V. Matthews, 2009. "From group diffusion to ratio bias: Effects of denominator and numerator salience on intuitive risk and likelihood judgments," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 4(6), pages 436-446, October.

    More about this item

    Keywords

    Framing effect; risk format; standard gamble; health state; dual-process theories.;

    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General

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