Your money and your life: risk attitudes over gains and losses

Adam Oliver

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Prospect theory is the most influential descriptive alternative to the orthodox model of rational choice under risk and uncertainty, in terms of empirical analyses of some of its principal parameters and as a consideration in behavioural public policy. Yet the most distinctive implication of the theory – a fourfold predicted pattern of risk attitudes called the reflection effect – has been infrequently studied and with mixed results over money outcomes, and has never been completely tested over health outcomes. This article reports tests of reflection over money and health outcomes defined by life years gained from treatment. With open valuation exercises, the results suggest qualified support for the reflection effect over money outcomes and strong support over health outcomes. However, in pairwise choice questions, reflection was substantially ameliorated over life years, remaining significant only for treatments that offered short additional durations of life.

Keywords: Expected utility theory; Markowitz; Prospect theory; Reflection effect; Risk (search for similar items in EconPapers)
JEL-codes: B21 C12 C91 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2018-08
New Economics Papers: this item is included in nep-hea, nep-hpe and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in Journal of Risk and Uncertainty, August, 2018, 57(1), pp. 29 - 50. ISSN: 0895-5646

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:88583

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