Related Experiment Video
Updated: Aug 14, 2026
13:04
Measuring the Subjective Value of Risky and Ambiguous Options using Experimental Economics and Functional MRI Methods
Published on: September 19, 2012
Willingness to pay for reductions in health risks when probabilities are distorted
Han Bleichrodt1, Louis Eeckhoudt
1Department of Economics, Erasmus University, Rotterdam, The Netherlands. bleichrodt@few.eur.nl
Health Economics
|December 7, 2005
Summary
People often overweight small probabilities when assessing health risks. This probability weighting significantly impacts willingness to pay estimates, potentially causing unstable health valuations.
Area of Science:
- Health economics
- Decision theory
- Risk perception
Background:
- Willingness to pay (WTP) is often elicited assuming linear probability evaluation.
- Empirical studies show individuals frequently weight probabilities non-linearly in decision-making under risk.
- This discrepancy may affect the reliability of WTP estimates for health risks.
Purpose of the Study:
- To investigate the impact of probability weighting on willingness to pay for health risk reductions.
- To determine if non-linear probability evaluation influences monetary valuations of health.
Main Methods:
- Analysis of willingness to pay for health risk reductions.
- Incorporation of probability weighting functions into economic models.
- Comparison of WTP estimates under linear versus non-linear probability evaluation.
Main Results:
- Probability weighting significantly alters willingness to pay estimates for health risk reductions.
- For typical baseline risk levels, non-linear probability evaluation leads to substantial changes in WTP.
- Monetary valuations of health can become unstable due to probability weighting.
Conclusions:
- Standard WTP elicitation methods may overestimate or underestimate the value of health risk reductions.
- Accounting for probability weighting is crucial for accurate health valuation.
- Probability weighting is a key factor in understanding individual risk preferences and economic behavior related to health.
Related Concept Videos
01:23Types of Biopharmaceutical Studies: Controlled and Non-Controlled Approaches
Biopharmaceutical studies constitute a vital field aiming to enhance drug delivery methods and refine therapeutic approaches, drawing upon diverse interdisciplinary knowledge. In research methodologies, the choice between controlled and non-controlled studies significantly influences the study's reliability and accuracy.
Non-controlled studies, commonly employed for initial exploration, lack a control group, rendering them susceptible to biases and external influences. In contrast, controlled...
Non-controlled studies, commonly employed for initial exploration, lack a control group, rendering them susceptible to biases and external influences. In contrast, controlled...
03:26Framing Effects
Information is everywhere and its presentation—such as how and when items are presented—can impact our perceptions and decisions surrounding the info. This broad concept umbrellas framing effects—influences that occur due to the way information is framed in its appearance, whether it’s purely the order or the specific wording of a message. Let’s take a look at numerous ways in which two versions of something can objectively say the same thing, yet we respond in different ways based on the...
01:12Relative Risk
Relative risk (RR) is a statistical measure commonly used in epidemiology to compare the likelihood of a particular event occurring between two groups. This metric is important for evaluating the relationship between exposure to a specific risk factor and the probability of a particular outcome. It plays a crucial role in medical research, public health studies, and risk assessment. Relative risk quantifies how much more (or less) likely an event is to occur in an exposed group compared to an...
01:25Models of Health Promotion and Illness Prevention I
A model is a theoretical way to understand a concept or an idea. Models can overcome barriers to health regardless of diverse economic and cultural backgrounds. In addition, models make the task easier by providing different ways to approach complex issues. There are two major health promotion models: the health belief model and the health promotion model.
The health belief model (HBM) attempts to predict health-related behavior in specific belief patterns. According to the HBM, a person's...
The health belief model (HBM) attempts to predict health-related behavior in specific belief patterns. According to the HBM, a person's...
01:18Models of Health Promotion and Illness Prevention II
The person's health status fluctuates continually, varying from being in good health to becoming ill and returning to being healthy. To understand the concept of illness prevention, there are two models. First, the health-illness continuum model is a graphic representation of an individual's wellness. It states that a person is considered healthy in the absence of physical disease and the presence of good emotional health.
The agent-host-environment model states that disease results from...
The agent-host-environment model states that disease results from...
01:08The Availability Heuristic
A heuristic is a general problem-solving framework (Tversky & Kahneman, 1974). You can think of these as mental shortcuts that are used to solve problems. Different types of heuristics are used in different types of situations, and the impulse to use a heuristic occurs when one of five conditions is met (Pratkanis, 1989):