Prospect theory in the health domain: a quantitative assessment
Werner Brouwer () and
MPRA Paper from University Library of Munich, Germany
It is well-known that expected utility (EU) has empirical deficiencies. Prospect theory (PT) has developed as an alternative with more descriptive validity. However, PT’s full function had not yet been quantified in the health domain. This paper is the first to simultaneously measure utility of life duration, probability weighting, and loss aversion for health. We observe loss aversion and risk aversion, 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, PT was proposed to explain choices among lotteries involving small outcomes. Life years are arguably not ‘small’ and need not generate convex utility for losses. Moreover, utility of life duration reflects discounting, causing concave utility. These results are a first step in fitting non-EU models for health-related decisions.
Keywords: Loss aversion; Prospect theory; QALY model; Utility of life duration (search for similar items in EconPapers)
JEL-codes: B41 I10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-hea and nep-upt
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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:pra:mprapa:44207
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