Quantitative tests of the perceived relative argument model : reply to Guo and Regenwetter (2014)

Guo and Regenwetter (2014) took the perceived relative argument model, added various auxiliary assumptions of their own about the utility of money, made assumptions about possible stochastic specifications, and tested the various combined models against data from an experiment they conducted. However, their modeling assumptions were questionable and their experiment was unsatisfactory: The stimuli omitted crucial information, the incentives were weak, and the task load was excessive. These shortcomings undermine the quality of the data, and the study provides no new information about the scope and limitations of the perceived relative argument model or its performance relative to other models of risky choice

Trying to estimate a monetary value for qualy

In this paper we study the feasibility of estimating a monetary value for a QALY (MVQ). Using two different surveys of the Spanish population (total n=892), we consider whether willingness to pay (WTP) is (approximately) proportional to the health gains measured in QALYs. We also explore whether subjects’ responses are prone to any significant biases. We find that the estimated MVQ varies inversely with the magnitude of health gain. We also find two other (ir)regularities: the existence of ordering effects; and insensitivity of WTP to the duration of the period of payment. Taken together, these effects result in large variations in estimates of the MVQ. If we are ever to obtain consistent and stable estimates, we should try to understand better the sources of variability found in the course of this study.

Noisy preferences in risky choice : a cautionary note

We examine the effects of multiple sources of noise in risky decision making. Noise in the parameters that characterise an individual’s preferences can combine with noise in the response process to distort observed choice proportions. Thus underlying preferences that conform to expected value maximization can appear to show systematic risk aversion or risk seeking. Similarly, core preferences that are consistent with expected utility theory, when perturbed by such noise, can appear to display non-linear probability weighting. For this reason, modal choices cannot be used simplistically to infer underlying preferences. Quantitative model fits that do not allow for both sorts of noise can lead to wrong conclusions

Trying to estimate a monetary value for the QALY

In this paper we study the possibility of estimating a monetary value for the QALY. Using two different surveys of the Spanish population (n=900), we try to establish whether willingness to pay (WTP) is (almost) proportional to the health gains measured in QALYs. We also explore whether subjects’ responses are prone to any biases. We find that the monetary value of the QALY is higher the smaller the health gain, pointing to insensitivity in WTP. We also find two clear biases. One is the existence of sequencing effects. The other is the insensitivity of WTP to the duration of the period of payment. All these effects translate into a large variation in estimates of the monetary value of the QALY. We conclude that in order to be able to obtain consistent and stable estimates, we should try to understand better the causes of these problems with a view to developing ways of mitigating them.QALYs, willingness to pay, biases.

Are Some Deaths Worse Than Others? The Effect of 'Labelling' on People's Perceptions

This paper sets out to explore the extent to which perceptions regarding the 'badness' of different types of deaths differ according to how those deaths are 'labelled' in the elicitation procedure. In particular, we are interested in whether responses to 'contextual' questions - where the specific context in which the deaths occur is known - differ from 'generic' questions - where the context is unknown. Further, we set out to test whether sensitivity to the numbers of deaths differs across the 'generic' and 'contextual' versions of the questions. We uncover evidence to suggest that both the perceived 'badness' of different types of deaths and sensitivity to the numbers of deaths may differ according to whether 'generic' or 'contextual' descriptions are used. Qualitative data suggested two reasons why responses to 'generic' and 'contextual' questions differed: firstly, some influential variables were omitted from the 'generic' descriptions and secondly, certain variables were interpreted somewhat differently once the context had been identified. The implications of our findings for 'generic' questions, such as those commonly used in health economics (for example, the EQ 5D), are discussed.Preferences, Context effects, Affect heuristic

Attitudes to uncertainty in a strategic setting

Much uncertainty in life relates to the behaviour of others in interactive environments. This paper tests some implications of subjective expected utility theory (Savage, 1954) in an experimental strategic setting where there is uncertainty about the actions of other players. In this environment, a large majority of our participants violate subjective expected utility theory. However, they do not exhibit the sorts of consistent ‘attitude to ambiguity’ found in individual decision experiments. We discuss three possible explanations of their behaviour: nonlinear transformation of probabilities; noise in responses; and/or systematic biases in the way that individuals generate subjective probabilities

Do markets reveal preferences or shape them?

We contrast the proposition that markets reveal independently-existing preferences with the alternative possibility that they may help to shape them. Using demand-revealing experimental market institutions, we separate the shaping effects of price cues from the effects of market discipline. We find that individual valuations and prevailing prices are systematically affected by both exogenous manipulations of price expectations and endogenous but divergent price feedback. These effects persist to varying degrees, in spite of further market experience. In some circumstances, market experience may actually consolidate them. We discuss possible explanations for these effects of uninformative price cues on revealed preferences

A Regret Theory of Capital Structure

This paper examines the optimal capital structure of a firm that delegates its financing decision of a risky project to a manager who is both risk averse and regret averse. Regret aversion is characterized by a utility function that includes disutility from having chosen ex-post suboptimal alternatives. We show that the manager optimally opts for zero leverage if risk aversion is relatively more important than regret aversion in representing the manager's preferences. Otherwise, the optimal capital structure is interior such that the optimal amount of debt increases when regret aversion becomes increasingly more important than risk aversion in representing the manager's preferences. We further show that the firm's market leverage ratio is inversely related to the project's profitability and to the firm's market-to-book ratio. These comparative static results are consistent with the robust evidence documented in the literature on empirical capital structure.postprin