Prospect theory in the health domain: A quantitative assessment

Arthur Attema, Werner Brouwer and Olivier L’haridon ()
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Olivier L’haridon: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique
Authors registered in the RePEc Author Service: Olivier L'Haridon

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Abstract: 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.

Keywords: Loss aversion; cumulative prospect theory; QALY model; Utility of life duration (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-upt
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00866788
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Citations: View citations in EconPapers (45)

Published in Journal of Health Economics, 2013, 32 (6), pp.1057-1065. ⟨10.1016/j.jhealeco.2013.08.006⟩

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Journal Article: Prospect theory in the health domain: A quantitative assessment (2013)
Working Paper: Prospect theory in the health domain: a quantitative assessment (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00866788

DOI: 10.1016/j.jhealeco.2013.08.006

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