This paper tests a novel implication of the original version of prospect theory (Kahneman and Tversky, 1979): that choices may systematically violate transitivity. Some have interpreted this implication as a weakness, viewing it as an anomaly generated by the ‘editing phase’ of prospect theory which can be rendered redundant by an appropriate re-specification of the preference function. Although there is some existing evidence that transitivity fails descriptively, the particular form of non-transitivity implied by prospect theory is quite distinctive and hence (...) presents an ideal opportunity to expose that theory to test. An experiment is reported which reveals strong evidence of the predicted intransitivity. It is argued that the existence of this new form of non-transitive behaviour presents a fresh theoretical challenge to those seeking descriptively adequate theories of choice behaviour, and a particular challenge to those who seek explanations within the conventional economic paradigm of utility maximisation. (shrink)

A recurring claim in a number of behavioural, cognitive and neuro-scientific literatures is that there is, or must be, a unidimensional ‘common currency’ in which the values of different available options are represented. There is striking variety in the quantities or properties that have been proposed as determinants of the ordering in motivational strength. Among those seriously suggested are pain and pleasure, biological fitness, reward and reinforcement, and utility among economists, who have regimented the notion of utility in a variety (...) of ways, some of them incompatible. This topic deserves philosophical attention for at least the following reasons. Repeated invocation of the ‘common currency’ idiom isn’t merely terminological coincidence because most of the claims are competing explanations either of manifest pattern in choices, or of order in the processes producing choice. We can’t suppose that the different currency claims within each area are compatible, because there are significant obstacles to identifying pairs of members of either the ‘pattern’ or ‘process’ group. There are, finally, seriously opposed positions about the relationships between the pattern facts and the process facts. There are philosophical positions both favouring and opposing a common currency. But direct consideration of the abstract relationships between claims about common currencies across scientific settings, and the arguments for and against these claims, is relatively rare. There is, though, much of philosophical interest to be found here. (shrink)

More attention has been devoted to providing evolutionary accounts of the development of beliefs, or belief-like states, than for desires or preferences. Here I articulate and defend an evolutionary rationale for the development of psychologically real preference states. Preferences token or represent the expected values available actions given discriminated states of world and agent. The argument is an application of the ‘environmental complexity thesis’ found in Godfrey-Smith and Sterelny, although my conclusions differ from Sterelny’s. I argue that tokening expected utilities (...) can, under specified general conditions, be a powerful design solution to the problem of efficiently allocating the capacities of an agent. Preferences are for efficient action selection, and count as a ‘fuel for success’ in the sense urged by Godfrey-Smith for true beliefs. They will tend to be favoured by selection when environments are complex in ways that matter to an organism, and when organisms have large behavioural repertoires with heterogeneous returns and costs.The rationale suggested here is conditional, especially on contingencies in what design options are available to selection and on trade-offs associated with the costs of generating and processing representations of value. The unqualified efficiency rationale for preferences suggests that organisms should represent expected utilities in a comprehensive and consistent way, but none of them do. In the final stages of the paper I consider some of the ways design trade-offs compromise the implementation of preferences in organisms that have them. (shrink)

The return on composite investment instruments takes the form of weighted-average, derived from two economic indicators or more. Three experiments illustrate that prospective investors tend to valuate composites “by-tranche”, consistently violating the premise of reduction. Valuation-by-tranche shows for uncertain and risky composites and reflects in allocation problems and binary choice. The willingness to invest still strongly increases when one tranche hedges against the other, suggesting that reduced-form considerations may interfere with the inclination to value by part. A hybrid model where (...) investors weight the values of tranches, but also respond to the reduced-form, approximates the data most accurately. (shrink)

Evidence accumulation has been the core component in recent development of perceptual and value-based decision-making theories. Most studies have focused on the evaluation of evidence between alternative options. What remains largely unknown is the process that prepares evidence: how may the decision-maker sample different sources of information sequentially, if they can only sample one source at a time? Here we propose a normative framework in prescribing how different sources of information should be sampled proactively to facilitate the decision process: beliefs (...) for different noisy sources are updated in a Bayesian manner and participants can proactively allocate resource for sampling (i.e. saccades) among different sources to maximize the information gain in such process. We show that our framework can account for human participants’ actual choice and saccade behaviors in a two-alternative value-based decision-making task. Moreover, our framework makes novel predictions about the empirical eye movement patterns. (shrink)

The article presents an Internet experiment where subjects sequentially bid for basic gifts and binary-lotteries on these gifts in incentive compatible Vickrey auctions. Subjects exhibit uniformly pessimistic prize-weighting in spite of precautions to reduce suspicion and prohibit collusion. The bids for lotteries are close to the minimal payable value, even when the probability of obtaining a better prize is larger than 50%. Prize-weighting becomes even more conservative as the distance in value of payable prizes increases. The twofold aversive affect appears (...) for three distinct groups of students; we demonstrate, however, that the same subjects overweight small win-probabilities in standard binary-choice. (shrink)

This paper reveals a serious flaw in the consequentialist solution to the inefficacy problem in moral philosophy. The consequentialist solution is based on expected utility theory. In current philosophical literature, the debate focuses on the empirical plausibility of the solution. Most philosophers consider the cases of collective actions as of the same type as a horse-racing game, where expected utility theory is adequate to solve the choice problem. However, these cases should be considered as of the same type as a (...) coordination game, where the assumption of common knowledge is also required. However, the assumption is implausible—it is impossible to obtain common knowledge of rationality in cases such as voting. (shrink)

An unprocessed risk is a collection of simple lotteries with a reduction-rule that describes the actual-payoff to the decision-maker as a function of realized lottery outcomes. Experiments reveal that the willingness to pay for unprocessed risks is consistently biased toward the payoff-level in the unprocessed representation. The anchoring-to-frame bias in cases of positive framing is significantly weaker than in cases of negative framing suggesting that rational negativity bias may reflect in asymmetric violations of rationality.

We present a framework for epistemic logic, modeling the logical aspects of System 1 and System 2 cognitive processes, as per dual process theories of reasoning. The framework combines non-normal worlds semantics with the techniques of Dynamic Epistemic Logic. It models non-logically-omniscient, but moderately rational agents: their System 1 makes fast sense of incoming information by integrating it on the basis of their background knowledge and beliefs. Their System 2 allows them to slowly, step-wise unpack some of the logical consequences (...) of such knowledge and beliefs, by paying a cognitive cost. The framework is applied to three instances of limited rationality, widely discussed in cognitive psychology: Stereotypical Thinking, the Framing Effect, and the Anchoring Effect. (shrink)

In this paper, a problem for utility theory - that it would have an agent who was compelled to play “Russian Roulette’ with one revolver or another, to pay as much to have a six-shooter with four bullets relieved of one bullet before playing with it, as he would be willing to pay to have a six-shooter with two bullets emptied - is reviewed. A less demanding Bayesian theory is described, that would have an agent maximize expected values of possible (...) total consequence of his actions. And utility theory is located within that theory as valid for agents who satisfy certain formal conditions, that is, for agents who are, in terms of that more general theory, indifferent to certain dimensions of ‘risk’. Raiffa- and Savage-style arguments for its more general validity are then resisted. Addenda are concerned with implications for game theory, and relations between ‘utilities’ and ‘values’. (shrink)

Many quantitative scales are constructed using cutoffs on a continuum with scores assigned to the cutoffs. This paper develops a framework for using or constructing such scales from a decision-making standpoint. It addresses questions such as: How many distinct thresholds or cutoffs on a scale (i.e., what levels of granularity) are useful for a rational agent? Where should these thresholds be placed given a rational agent’s preferences and risk-orientation? Do scale score assignments have any bearing on decision-making and if so, (...) how should scores be assigned? Given two possible states of nature , an ordered collection of alternatives from which one is to be selected depending on the probability that A is the case, a simple expected utility condition stipulates when adjacent alternatives are distinguishable and determines the threshold odds separating them. Threshold odds and utilities are mapped onto scale scores via a simple distance model. The placement of the thresholds reflects relative concern over decisional consequences given A versus consequences given ∼ A. Likewise, it is shown that scale scores reflect risk-aversion or risk-seeking not only with respect to A versus ∼ A but also with respect to the rank of the R j . Connections are drawn between this framework and rank-dependent expected utility (RDEU) theory. Implications are adumbrated for both machine and human decision-making. (shrink)

Suppose that two competing norms, N1 and N2, can be identified such that a given person’s response can be interpreted as correct according to N1 but incorrect according to N2. Which of these two norms, if any, should one use to interpret such a response? In this paper we seek to address this fundamental problem by studying individual variation in the interpretation of conditionals by establishing individual profiles of the participants based on their case judgments and reflective attitudes. To investigate (...) the participants’ reflective attitudes we introduce a new experimental paradigm called the Scorekeeping Task. As a case study, we identify the participants who follow the Suppositional Theory of conditionals (N1) versus Inferentialism (N2) and investigate to what extent internally consistent competence models can be reconstructed for the participants on this basis. After extensive empirical investigations, an apparent reasoning error with and-to-if inferences was found in one of these two groups. The implications of this case study for debates on the proper role of normative considerations in psychology are discussed. (shrink)

Public discussions of political and social issues are often characterized by deep and persistent polarization. In social psychology, it’s standard to treat belief polarization as the product of epistemic irrationality. In contrast, we argue that the persistent disagreement that grounds political and social polarization can be produced by epistemically rational agents, when those agents have limited cognitive resources. Using an agent-based model of group deliberation, we show that groups of deliberating agents using coherence-based strategies for managing their limited resources tend (...) to polarize into different subgroups. We argue that using that strategy is epistemically rational for limited agents. So even though group polarization looks like it must be the product of human irrationality, polarization can be the result of fully rational deliberation with natural human limitations. (shrink)

The behavioural decision-theoretic concepts of mental accounting, framing and transaction utility have now been employed in marketing models and techniques. To date, however, there has not been any discussion of the ethical issues surrounding these significant developments. In this paper, an ethical evaluation is structured around three themes: (i) utilitarian justification (ii) the strategic exploitation of cognitive habits, and (iii) the claim of scientific status for the techniques. Some recommendations are made for ethical practices.

People often choose intuitive rather than equally valid nonintuitive alternatives. The authors suggest that these intuitive biases arise because intuitions often spring to mind with subjective ease, and the subjective ease leads people to hold their intuitions with high confidence. An investigation of predictions against point spreads found that people predicted intuitive options more often than equally valid nonintuitive alternatives. Critically, though, this effect was largely determined by people's confidence in their intuitions. Across naturalistic, expert, and laboratory samples, against personally (...) determined point spreads, and even when intuitive confidence was manipulated by altering irrelevant aspects of the decision context, the authors found that decreasing intuitive confidence reduced or eliminated intuitive biases. These findings indicate that intuitive biases are not inevitable but rather predictably determined by contextual variables that affect intuitive confidence. (shrink)

In this essay I enter into a recently published debate between Stephen Schiffer and Jerry Fodor concerning whether adequate sense can be made of the ceteris paribus conditions in special science laws, much of their focus being on the case of putative psychological laws. Schiffer argues that adequate sense cannot be made of ceteris paribus clauses, while Fodor attempts to overcome Schiffer's arguments, in defense of special science laws. More recently, Peter Mott has attempted to show that Fodor's response to (...) Schiffer fails, and furthermore that further study shows that the logical framework in which Schiffer and Fodor address their issue is susceptible to inconsistency.In this essay I argue that adequate sense can be made of ceteris paribus conditions. Against Mott, I argue that recent work in the model theory of non-monotonic logic indicates how his problem involving logical inconsistencies can be overcome. Against Schiffer, I argue that the claims that he makes against ceteris paribus clauses would lead to a fatal skepticism concerning indefinitely many of the claims we make about the world (and indeed that his claims would be destructive of the view of the special sciences that Schiffer himself presents in his paper), and that the semantical considerations from non-monotonic logic that I present provide a suitable framework for dealing with his complaints. Thus I come out on the whole on Fodor's side of this debate, although for my own reasons, as I argue against much of Fodor's own argumentation. (shrink)

Several studies on time preference have found time inconsistency in both gain and loss preferences. However, the relationship between the two within the same person remains unclear; that is, does an individual who demonstrates time inconsistency for gain outcomes do so for losses as well? This paper reports on individuals’ time inconsistency for gains and losses in a laboratory setting. To obtain a precise comparison of individuals’ time inconsistency for gains and losses, we used Rohde’s “DI -index” :1700–1716, 2018) and (...) measured the level of time inconsistency, rather than merely identifying whether TI was present. This index represents how strongly a person exhibits present bias, and easily extends to the comparison between gain and loss preferences within the same person. Further, it allows the experiment to test for so-called future bias, which has been a focus area in recent time inconsistency literature. It is elicited through a non-parametric method, which avoids any specification errors in the analysis. Our findings are as follows: first, we found future bias in preferences for not only gains but also losses, and we confirmed that this tendency is consistent with previous findings on preferences for gains. Second, a positive correlation between time inconsistency for gains and losses was found at the individual level. Indeed, we could not find a significant difference between the two in most cases. (shrink)

One of the paradigms in judgment and decision-making involves decision-makers sample information before making a final consequential choice. In the sampling paradigm, certain computational models have been proposed where a set of single or distribution parameters is calibrated to the choice proportions of a group of participants. However, currently little is known on how aggregate and hierarchical models would account for choices made by individual participants in the sampling paradigm. In this paper, we test the ability of aggregate and hierarchical (...) models to explain choices made by individual participants. Several models, Ensemble, Cumulative Prospect Theory, Best Estimation and Simulation Techniques, Natural-Mean Heuristic, and Instance-Based Learning, had their parameters calibrated to individual choices in a large dataset involving the sampling paradigm. Later, these models were generalized to two large datasets in the sampling paradigm. Results revealed that the aggregate models accounted for individual choices better than hierarchical models upon generalization to problems that were like those encountered during calibration. Furthermore, the CPT model, which relies on differential valuing of gains and losses, respectively, performed better than other models during calibration and generalization on datasets with similar set of problems. The IBL model, relying on recency and frequency of sampled information, and the NMH model, relying on frequency of sampled information, performed better than other models during generalization to a challenging dataset. Sequential analyses of results from different models showed how these models accounted for transitions from the last sample to final choice in human data. We highlight the implications of using aggregate and hierarchical models in explaining individual choices from experience. (shrink)

We consider bargaining situations where two players evaluate outcomes with reference-dependent utility functions, analyzing the effect of differing levels of loss aversion on bargaining outcomes. We find that as with risk aversion, increasing loss aversion for a player leads to worse outcomes for that player in bargaining situations. An extension of Nash's axioms is used to define a solution for bargaining problems with exogenous reference points. Using this solution concept we endogenize the reference points into the model and find a (...) unique solution giving reference points and outcomes that satisfy two reasonable properties, which we predict would be observed in a steady state. The resulting solution also emerges in two other approaches, a strategic (non-cooperative) approach using Rubinstein's (1982) alternating offers model and a dynamic approach in which we find that even under weak assumptions, outcomes and reference points converge to the steady state solution from any non-equilibrium state. (shrink)

A predictive model applicable in both neurophysiological and decision-making studies is proposed, bridging the gap between psychological/behavioral and neurophysiological studies. Supposing the electromagnetic waves are carriers of decision-making, and electromagnetic waves with the same frequency, individual amplitude and constant phase triggered by conditions interfere with each other and the resultant intensity determines the probability of the decision. Accordingly, brainwave-interference decision-making model is built mathematically and empirically test with neurophysiological and behavioral data. Event-related potential data confirmed the stability of the phase (...) differences in a given decision context. Behavioral data analysis shows that phase stability exists across categorization-decision, two-stage gambling, and prisoner’s dilemma decisions. Irrational decisions occurring in those experiments are actually rational as their phases could be quantitatively derived from the phases of the riskiest and safest choices. Model fitting result reveals that the root-mean-square deviations between the fitted and actual phases of irrational decisions are less than 10°, and the mean absolute percentage errors of the fitted probabilities are less than 0.06. The proposed model is similar in mathematical form compared with the quantum modeling approach, but endowed with physiological/psychological connection and predictive ability, and promising in the integration of neurophysiological and behavioral research to explore the origin of the decision. (shrink)

We provide an economic interpretation of the practice consisting in incorporating risk measures as constraints in an expected prospect maximization problem. For what we call the infimum of expectations class of risk measures, we show that if the decision maker (DM) maximizes the expectation of a random prospect under constraint that the risk measure is bounded above, he then behaves as a “generalized expected utility maximizer” in the following sense. The DM exhibits ambiguity with respect to a family of utility (...) functions defined on a larger set of decisions than the original one; he adopts pessimism and performs first a minimization of expected utility over this family, then performs a maximization over a new decisions set. This economic behaviour is called “maxmin under risk” and studied by Maccheroni (Econ Theory 19:823–831, 2002). As an application, we make the link between an expected prospect maximization problem, subject to conditional value-at-risk being less than a threshold value, and a non-expected utility economic formulation involving “loss aversion”-type utility functions. (shrink)

The response mode bias, in which subjects exhibit different risk attitudes when assessing certainty equivalents versus indifference probabilities, is a well-known phenomenon in the assessment of utility functions. In this empirical study, we develop and apply a cardinal measure of risk attitudes to analyze not only the existence, but also the strength of this phenomenon. Since probability levels involved in decision problems are already known to have a strong impact on behavior, we use this approach to study the impact of (...) probabilities on the extent of the response mode bias. We find that the direction in which probabilities influence measured risk aversion is the opposite in the certainty equivalence (CE) method versus in the probability equivalence (PE) method. Utilizing the CE elicitation approach leads to an increase of risk seeking for gambles involving high probabilities. For the PE method, subjects tend to behave risk averse with gambles of high probabilities. This behavior is reversed in the gain domain. This “tailwhip” effect is consistently replicated in several experiments, involving both loss and gain domains of lotteries. (shrink)

A 1% skeptic is someone who has about a 99% credence in non-skeptical realism and about a 1% credence in the disjunction of all radically skeptical scenarios combined. The first half of this essay defends the epistemic rationality of 1% skepticism, appealing to dream skepticism, simulation skepticism, cosmological skepticism, and wildcard skepticism. The second half of the essay explores the practical behavioral consequences of 1% skepticism, arguing that 1% skepticism need not be behaviorally inert.

Common ratio effects should be ruled out if subjects’ preferences satisfy compound independence, reduction of compound lotteries, and coalescing. In other words, at least one of these axioms should be violated in order to generate a common ratio effect. Relying on a simple experiment, we investigate which failure of these axioms is concomitant with the empirical observation of common ratio effects. We observe that compound independence and reduction of compound lotteries hold, whereas coalescing is systematically violated. This result provides support (...) for theories which explain the common ratio effect by violations of coalescing instead of violations of compound independence. (shrink)

The emergence of economic inequality has often been linked to individual differences in mental or physical capacities. By means of an agent-based simulation this paper shows that neither of these is a necessary condition. Rather, inequality can arise from iterated interactions of fully rational agents. This bears consequences for our understanding of both inequality and rationality. In a setting of iterated bargaining games, we claim that expected utility maximizing agents perform suboptimally in comparison with other strategies. The reason for this (...) lies in complex feedback effects between an agents’ action and the quality of beliefs used to calculate expected utility. Consequentially, we argue that the standard notion of rationality as maximizing expected utility is insufficient, even for certain standard cases of economic interaction. (shrink)

Patients should not always receive hard data about the risks and benefits of a medical intervention. That information should always be available to patients who expressly ask for it, but it should be part of standard disclosure only sometimes, and only for some patients. And even then, we need to think about how to offer it.

A number of scholars have recently defended the claim that there is a close connection between the evolutionary biological notion of fitness and the economic notion of utility: both are said to refer to an organism’s success in dealing with its environment, and both are said to play the same theoretical roles in their respective sciences. However, an analysis of two seemingly disparate but in fact structurally related phenomena—‘niche construction’ (the case where organisms change their environment to make it fit (...) to their needs) and ‘adaptive preferences’ (the case where agents change their wants to make them fit to what the world has given them)—shows that one needs to be very careful about the postulation of this sort of fitness–utility connection. Specifically, I here use the analysis of these two phenomena to establish when connecting fitness and utility is and is not possible. (shrink)

In order to accommodate empirically observed violations of the independence axiom of expected utility theory Becker and Sarin (1987) proposed their model of lottery dependent utility in which the utility of an outcome may depend on the lottery being evaluated. Although this dependence is intuitively very appealing and provides a simple functional form of the resulting decision criterion, lottery dependent utility has been nearly completely neglected in the recent literature on decision making under risk. The goal of this paper is (...) to revive the lottery dependent utility model. Therefore, we derive first a sound axiomatic foundation of lottery dependent utility. Secondly, we develop a discontinuous variant of the model which can accommodate boundary effects and may lead to a lexicographic non-expected utility model. Both analyses are accompanied by considering some functional specifications which are in accordance with recent experimental results and may have significant applications in business and management science. (shrink)

In contrast to the assumptions of standard economic theory, recent experimental evidence shows that the income of peers has a systematic impact on observed degrees of risk aversion. This paper reports the findings of two experiments examining the impact of income inequality on risk preferences and whether the knowledge of inequality mediates the decisions. In Experiment 1, participants who were recruited for a real-effort task were paid either a low wage or a high wage. Half of the participants were aware (...) of the income inequality, while the other half were not. After completing their task, they were invited to invest a part of their salary in a risky asset. In Experiment 2, we replicated the same experiment in the laboratory with windfall endowments to test the consistency of results in the laboratory settings. The results of the first experiment show that high-wage subjects take higher risks than low-wage participants do if they are aware of the inequality in wages. This finding supports the idea that income comparisons shape risky decisions. In Experiment 2, on the other hand, we did not observe any significant differences in decisions. This may suggest that the income comparison is sensitive to house-money effect. (shrink)

Aumann and Serrano :810–836, 2008) introduce the axiom of duality, which ensures that risk measures respect comparative risk aversion. This paper characterizes all dual risk measures by a simple equivalent condition. This equivalence provides a decomposition result and a construction method, which is used to analyze concrete dual measures. Moreover, this paper aims to extend this characterization to the most general setting. Compared with Aumann and Serrano, it, therefore, relaxes the axiom of positive homogeneity, and allows for risk-neutral and risk-seeking (...) agents, as well as for all integrable gambles. (shrink)

We are often justified in acting on the basis of evidential confirmation. I argue that such evidence supports belief in non-quantificational generic generalizations, rather than universally quantified generalizations. I show how this account supports, rather than undermines, a Bayesian account of confirmation. Induction from confirming instances of a generalization to belief in the corresponding generic is part of a reasoning instinct that is typically (but not always) correct, and allows us to approximate the predictions that formal epistemology would make.

With the growing focus on prevention in medicine, studies of how to describe risk have become increasing important. Recently, some researchers have argued against giving patients “comparative risk information,” such as data about whether their baseline risk of developing a particular disease is above or below average. The concern is that giving patients this information will interfere with their consideration of more relevant data, such as the specific chance of getting the disease (the “personal risk”), the risk reduction the treatment (...) provides, and any possible side effects. I explore this view and the theories of rationality that ground it, and I argue instead that comparative risk information can play a positive role in decision-making. The criticism of disclosing this sort of information to patients, I conclude, rests on a mistakenly narrow account of the goals of prevention and the nature of rational choice in medicine. (shrink)

People often face preferential decisions under risk. To further our understanding of the cognitive processes underlying these preferential choices, two prominent cognitive models, decision field theory (DFT; Busemeyer & Townsend, 1993) and the proportional difference model (PD; González‐Vallejo, 2002), were rigorously tested against each other. In two consecutive experiments, the participants repeatedly had to choose between monetary gambles. The first experiment provided the reference to estimate the models’ free parameters. From these estimations, new gamble pairs were generated for the second (...) experiment such that the two models made maximally divergent predictions. In the first experiment, both models explained the data equally well. However, in the second generalization experiment, the participants’ choices were much closer to the predictions of DFT. The results indicate that the stochastic process assumed by DFT, in which evidence in favor of or against each option accumulates over time, described people’s choice behavior better than the trade‐offs between proportional differences assumed by PD. (shrink)

In this paper we experimentally investigate the disparity between willingness-to-accept (WTA) and willingness-to-pay (WTP) for risky lotteries. The direction of the income effect is reversed by endowing subjects with the highest price of a lottery when asking the WTP question. Our results show that the income effect is too small to be the only source of the disparity. Since the disparity concentrates on a subsample of subjects, parametric and nonparametric tests of the WTA-WTP ratio may lead to contradictory results. The (...) disparity is significantly reduced when background risk is introduced. That is, putting subjects always into a risky position could improve the contingent valuation method, which is often concerned with the assessment of risky situations such as health risks, automobile safety, etc. (shrink)

We propose a task for eliciting attitudes toward risk that is close to real-world risky decisions which typically involve gains and losses. The task consists of accepting or rejecting gambles that provide a gain with probability p\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$p$$\end{document} and a loss with probability 1-p\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$1-p$$\end{document}. We employ finite mixture models to uncover heterogeneity in risk preferences and find that behavior is heterogeneous, with one half (...) of the subjects behaving as expected utility maximizers, for the others, reference-dependent models perform better than those where subjects derive utility from final outcomes, models with sign-dependent decision weights perform better than those without, and there is no evidence for loss aversion. The procedure is sufficiently simple so that it can be easily used in field or lab experiments where risk elicitation is not the main experiment. (shrink)

In most forms of evaluation the benefits of preventive health care are narrowly defined in terms of reductions in future morbidity and mortality. Thus it is normally assumed that it is the final health gains alone which bear utility. This discounts the possibility that individuals may derive utility from the process of health care and other outcomes as well as the end health states. Attributes such as anxiety, reassurance, autonomy, regret and hope provide potential benefits or disbenefits in addition to (...) health gains. This paper explores the concept of process utility in the specific context of preventive goods. Characteristics such as information, awareness and autonomy are examined for two preventive goods—hip protectors and mammographic screening. If individuals trade off process attributes for final health outcomes, then to ignore process utility may lead to a sub-optimal allocation of resources. (shrink)