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Testing models of stochastic choice in health state valuation data

Author

Listed:
  • Paul Dolan
  • Oyeyemi Oluboyede
  • Jennifer Roberts

    (Department of Economics, The University of Sheffield)

Abstract

Expected Utility (EU) theory is the standard economic model of individual preferences under uncertainty. However, observed violations of the axioms of EU have generated interest in the incorporation of a stochastic element into deterministic models of decision-making. Previous empirical investigation of the theories of stochastic choice has involved monetary gambles in risky conditions using convenience samples of students. The aim of this study is to test generalisations of these models in the context of eliciting the preferences of the general public over health states under conditions of certainty. Our findings lend support to the `white noise´ stochastic specification of Hey and Orme (1994) which indicates that the stronger the preferences of an individual, the less likely they are to make a mistake and attach a lower value to their truly preferred alternative. JEL Classification: D0 Key words: Stochastic preferences, utility assessment, expected utility theory.

Suggested Citation

  • Paul Dolan & Oyeyemi Oluboyede & Jennifer Roberts, 2005. "Testing models of stochastic choice in health state valuation data," Working Papers 2005017, The University of Sheffield, Department of Economics, revised Nov 2005.
    • Handle: RePEc:shf:wpaper:2005017
    as

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    File URL: http://www.shef.ac.uk/content/1/c6/03/91/72/SERP2005017.pdf
    File Function: First version, 2005
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    File URL: http://www.shef.ac.uk/content/1/c6/03/91/72/SERP2005017.pdf
    File Function: Revised version, 2005
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    References listed on IDEAS

    as
    1. John D. Hey & Chris Orme, 2018. "Investigating Generalizations Of Expected Utility Theory Using Experimental Data," World Scientific Book Chapters, in: Experiments in Economics Decision Making and Markets, chapter 3, pages 63-98, World Scientific Publishing Co. Pte. Ltd..
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    JEL classification:

    • D0 - Microeconomics - - General

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