Testing models of stochastic choice in health state valuation data

Paul Dolan, Yemi Oluboyede and Jennifer Roberts

No 2005017, Working Papers from The University of Sheffield, Department of Economics

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.

Keywords: Stochastic preferences; utility assessment; expected theory (search for similar items in EconPapers)
JEL-codes: D0 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2005-11, Revised 2005-11
New Economics Papers: this item is included in nep-dcm, nep-hea and nep-upt
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