“Lottery Equivalents”: Reduction of the Certainty Effect Problem in Utility Assessment

McCord, Mark R.; Neufville, Richard de

doi:10.1287/mnsc.32.1.56

Cited by 170 publications

(80 citation statements)

References 7 publications

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“…To that end, we conducted a survey amongst the general population (N=300) asking VEI questions using the operationalization of Murray et al's proposal suggested by Nord [3]. Respondents were also interviewed using the conventional PTO method and a variant of the SG proposed by McCord and de Neufville [10] that they called the "lottery equivalent" (LE) method.…”

Section: Elicitation Techniquesmentioning

confidence: 99%

Measuring the health of populations: the veil of ignorance approach

Prades

Abellán-Perpiñán

2004

Health Economics

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We report the results from two surveys designed to explore whether an application of Harsanyi's principle of choice form behind a veil of ignorance (VEI) can be used in order to measure the health of populations. This approach was tentatively recommended by Murray et al. (Bull. World Health Organ 2000; 78 : 981-994; Summary Measures of population health: Concepts, Ethics, Measurement and Applications, WHO, 2002.) as an appropriate way of constructing summary measures of population health (SMPH) for comparative purposes. The operationalization of the VEI approach used in this paper was suggested by Nord (Summary Measures of Population Health: Concepts, Ethics, Measurement and Applications, WHO, 2002.). We test if VEI and person trade-off (PTO) methods generate similar quality-of-life weights. In addition, we compare VEI and PTO weights with individual utilities estimated by means of the conventional standard gamble (SG) and a variation of it we call double gamble. Finally, psychometric properties like feasibility, reliability, and consistency are examined. Our main findings are next: (1) VEI and PTO approaches generate very different weights; (2) it seems that differences between PTO and VEI are not due to the 'rule of rescue'; (3) the VEI resembled more a DG than a classical SG; (4) PTO, VEI, and DG exhibited good feasibility, reliability and consistency. Copyright © 2004 John Wiley & Sons, Ltd.

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Section: Elicitation Techniquesmentioning

confidence: 99%

Measuring the health of populations: the veil of ignorance approach

Prades

Abellán-Perpiñán

2004

Health Economics

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“…Both probability weighting and loss aversion are modeled by prospect theory, currently the most influential descriptive model of decision under risk. A difficulty in measuring utility under prospect theory is that the methods that are commonly used to measure utility, such as the probability, certainty equivalence, and lottery equivalence methods (Farquhar 1984, McCord andde Neufville 1986) are no longer valid because they do not take account of probability weighting and loss aversion. Wakker and Deneffe's (1996) trade-off method is robust to probability weighting when all outcomes are of the same sign, but is not able to handle loss aversion.…”

Section: Introductionmentioning

confidence: 99%

A Tractable Method to Measure Utility and Loss Aversion under Prospect Theory

Abdellaoui¹,

Bleichrodt²,

l’Haridon³

2007

PsycEXTRA Dataset

105

171

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This paper provides an efficient method to measure utility under prospect theory, the most important descriptive theory of decision under uncertainty today. Our method is based on the elicitation of certainty equivalents for two-outcome prospects, a common way to measure utility. We applied our method in an experiment and found that most subjects were risk averse for gains and risk seeking for losses but had concave utility both for gains and for losses. This finding illustrates empirically that risk seeking and concave utility can coincide under prospect theory, a result that was derived theoretically by Chateauneuf and Cohen (1994). Utility was steeper for losses than for gains, which is consistent with loss aversion.Utility did not depend on the probability used in the elicitation, which offers support for prospect theory.

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“…It thus remains possible that loss aversion is one (though probably not the sole) cause of the observed internal inconsistency. If we accept that this explanation is plausible, further tests of internal consistency ought to be undertaken (1) after mitigating loss aversion with a more sophisticated internalisation of this psychological process in the standard gamble valuation procedure (Bleichrodt, Pinto, & Wakker, 2001;Oliver, 2003), and/or (2) on alternatives to the standard gamble that intuitively induce less loss aversion (McCord & de Neufville, 1986). These tasks are beyond the scope of this article, but both offer scope for interesting and potentially important research.…”

Section: Resultsmentioning

confidence: 99%

Testing the internal consistency of the standard gamble in ‘success’ and ‘failure’ frames

Oliver

2004

Social Science & Medicine

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Testing the internal consistency of the standard gamble in 'success' and 'failure' frames AbstractDecision making behaviour has often been shown to vary following changes in the way in which choice problems are described (or 'framed'). Moreover, a number of researchers have demonstrated that the standard gamble is prone to internal inconsistency, and loss aversion has been proposed as an explanation for this observed bias. This study attempts to alter the influence of loss aversion by framing the treatment arm of the standard gamble in terms of success (where we may expect the influence of loss aversion to be relatively weak) and in terms of failure (where we may expect the influence of loss aversion to be relatively strong). The objectives of the study are (1) to test whether standard gamble values vary when structurally identical gambles are differentially framed, and (2) to test whether the standard gamble is equally prone to internal inconsistency across the two frames (i.e. across frames where we may expect the strength of loss aversion to differ). The results show that compared to framing in terms of treatment success, significantly higher values were inferred when the gamble was framed in terms of treatment failure. However, there was no difference in the quite marked levels of internal inconsistency observed in both frames. It is possible that the essential construct of the standard gamble induces substantial loss aversion irrespective of the way in which the gamble is framed, which offers a fundamental challenge to the usefulness of this value elicitation instrument. It is therefore recommended that further tests are undertaken on more sophisticated corrective procedures designed to limit the influence of loss aversion.

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“Lottery Equivalents”: Reduction of the Certainty Effect Problem in Utility Assessment

Cited by 170 publications

References 7 publications

Measuring the health of populations: the veil of ignorance approach

Measuring the health of populations: the veil of ignorance approach

A Tractable Method to Measure Utility and Loss Aversion under Prospect Theory

Testing the internal consistency of the standard gamble in ‘success’ and ‘failure’ frames

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