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Prospect theory in the health domain: A quantitative assessment

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.
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Submitted on : Monday, October 14, 2013 - 2:33:51 PM
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Arthur E. Attema, Werner B.F. Brouwer, Olivier L’haridon. Prospect theory in the health domain: A quantitative assessment. Journal of Health Economics, Elsevier, 2013, 32 (6), pp.1057-1065. ⟨10.1016/j.jhealeco.2013.08.006⟩. ⟨halshs-00866788⟩

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