Related Experiment Video
Updated: Jun 15, 2026
13:04
Measuring the Subjective Value of Risky and Ambiguous Options using Experimental Economics and Functional MRI Methods
Published on: September 19, 2012
How does cost matter in health-care discrete-choice experiments?
F Reed Johnson1, Ateesha F Mohamed, Semra Ozdemir
1RTI Health Solutions, Research Triangle Park, NC, USA. frjohnson@rti.org
Health Economics
|March 11, 2010
Summary
Willingness-to-pay (WTP) estimates from discrete-choice experiments (DCEs) may be inaccurate. Cognitive heuristics can cause individuals to misinterpret costs, potentially invalidating WTP as a welfare measure.
Area of Science:
- Behavioral Economics
- Health Economics
- Environmental Economics
Background:
- Willingness-to-pay (WTP) estimates from discrete-choice experiments (DCEs) commonly assume constant marginal utility of income.
- This assumption aligns with economic theory when costs represent a small portion of total income.
Purpose of the Study:
- To directly test the assumption of constant marginal utility of income in DCEs.
- To investigate potential cognitive heuristics that may violate this assumption and impact WTP validity.
Main Methods:
- Analysis of results from five discrete-choice experiments (DCEs) designed to test the marginal utility of income assumption.
- Examination of how subjects recode numerical cost levels into qualitative categories.
Main Results:
- Empirical tests revealed frequent violations of the constant marginal utility of income assumption.
- A cognitive heuristic of recoding costs into categories (e.g., 'low,' 'medium,' 'high') was identified as a likely cause.
- This recoding simplifies choices but undermines the accuracy of WTP estimates as welfare measures.
Conclusions:
- The assumption of constant marginal utility of income in DCEs is often violated due to cognitive recoding of costs.
- This heuristic is particularly relevant in healthcare settings where insurance may distort cost perception.
- Strategies like 'cheap talk' or graphical representations may improve the accuracy of DCE-based WTP estimates.
Related Concept Videos
01:15Bioequivalence Experimental Study Designs: Repeated Measures, Cross-Over, Carry-Over, and Latin Square Designs
Bioequivalence experimental study designs play a pivotal role in testing the effectiveness of various treatments. Key among these are the repeated measures, cross-over, carry-over, and Latin square designs. In the repeated measures design, each subject receives all treatments, allowing for temporal comparisons. This type of design is useful in reducing variability but requires careful planning to avoid bias.The cross-over design, an economical method, involves sequential administration of...
01:12What is an Experiment?
An experiment is a planned activity carried out under controlled conditions. The purpose of an experiment is to investigate the relationship between two variables. When one variable causes change in another, we call the first variable the explanatory or independent variable. The affected variable is called the response or dependent variable. In a randomized experiment, the researcher manipulates values of the explanatory variable and measures the resulting changes in the response variable. The...
01:16Crossover Experiments
Crossover experiments, also called the repeated-measurements design, is a study design in which all experimental units are exposed to all treatments in different periods. Crossover experiments are generally used in psychology, the pharmaceutical industry, agriculture, and medicine.
Crossover designs are performed even with smaller sample sizes since the samples can act as their controls. These are better than simple randomized trials since patients are exposed to all the treatments.
Crossover designs are performed even with smaller sample sizes since the samples can act as their controls. These are better than simple randomized trials since patients are exposed to all the treatments.
01:38Cognitive Dissonance
Social psychologists have documented that feeling good about ourselves and maintaining positive self-esteem is a powerful motivator of human behavior (Tavris & Aronson, 2008). In the United States, members of the predominant culture typically think very highly of themselves and view themselves as good people who are above average on many desirable traits (Ehrlinger, Gilovich, & Ross, 2005). Often, our behavior, attitudes, and beliefs are affected when we experience a threat to our...
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...
01:20Bioequivalence Experimental Study Designs: Completely Randomized and Randomized Block Designs
Bioequivalence experimental study designs are crucial methodologies used in evaluating and comparing the bioavailability of different drug products. These designs are categorized into various types: completely randomized, randomized block, repeated measures, cross and carry-over, and Latin square designs.Completely randomized designs involve randomly allocating treatments to all subjects participating in the experiment. This allocation is achieved by assigning unique random numbers to subjects...