Working Paper: CEPR ID: DP6616
Authors: Einat Neuman; Shoshana Neuman
Abstract: A Discrete Choice Experiment (DCE) in the health-care sector is used to test the loss aversion theory that is derived from reference-dependent preferences: The absolute subjective value of a deviation from a reference point is generally greater when the deviation represents a loss than when the same-sized change is perceived as a gain. As far as is known, this paper is the first to use a DCE to test the loss aversion theory. A DCE appears to be a highly suitable tool for this testing because it estimates the marginal valuations of attributes, based on deviations from a reference point (a constant scenario). Moreover, loss aversion can be examined for each attribute separately. A DCE can also be applied to non-traded goods with non-tangible attributes. A health-care event is used for empirical illustration: The loss aversion theory is tested within the context of preference structures for maternity-ward attributes, estimated using data entailing 3850 observations from a sample of 542 women who recently gave birth. Seven hypotheses are presented and tested. Overall, significant support for behavioural loss aversion theories was found.
Keywords: attributes; discrete choice experiment; loss aversion; maternity wards; preferences; referencedependence
JEL Codes: D01; D12; I19
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| loss aversion (G41) | preferences for maternity ward attributes (J13) |
| loss from three-bed room to two-bed room (R21) | decrease in utility (D11) |
| gain from two-bed room to three-bed room (R21) | increase in utility (D11) |
| reference points established by DCE design (Y10) | different preference structures (D11) |
| loss aversion hypothesis confirmed for four out of five attributes (G41) | differences in utility (D11) |