Testing the Descriptive Performance of the Rank-Dependent Utility in the Domain of Health Profiles

UPF Economics and Business Working Paper No. 551

Spanish Economic Review, Vol. 3, No. 3, 2001

29 Pages Posted: 10 Sep 2002 Last revised: 7 Aug 2012

See all articles by José María Abellán Perpiñán

José María Abellán Perpiñán

University of Murcia - Department of Applied Economics

José Luis Pinto Prades

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Date Written: 2001

Abstract

Expected utility theory (EUT) has been challenged as a descriptive theory in many contexts. The medical decision analysis context is not an exception. Several researchers have suggested that rank dependent utility theory (RDUT) may accurately describe how people evaluate alternative medical treatments. Recent research in this domain has addressed a relevant feature of RDU models-probability weighting - but to date no direct test of this theory has been made. This paper provides a test of the main axiomatic difference between EUT and RDUT when health profiles are used as outcomes of risky treatments. Overall, EU best described the data. However, evidence on the editing and cancellation operation hypothesized in Prospect Theory and Cumulative Prospect Theory was apparent in our study. we found that RDU outperformed EU in the presentation of the risky treatment pairs in which the common outcome was not obvious. The influence of framing effects on the performance of RDU and their importance as a topic for future research is discussed.

Keywords: Expected utility, health outcomes, medical decision-making

JEL Classification: D8, I11

Suggested Citation

Abellán Perpiñán, José María and Pinto Prades, José Luis, Testing the Descriptive Performance of the Rank-Dependent Utility in the Domain of Health Profiles (2001). UPF Economics and Business Working Paper No. 551, Spanish Economic Review, Vol. 3, No. 3, 2001, Available at SSRN: https://ssrn.com/abstract=310221 or http://dx.doi.org/10.2139/ssrn.310221

José María Abellán Perpiñán

University of Murcia - Department of Applied Economics ( email )

3010 Murcia
Spain
+34968363736 (Phone)
+34968363745 (Fax)

José Luis Pinto Prades (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

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