Quality of Life and Prospect Theory

Prospect theory states that individuals view transactions relative to a fixed reference point.  Individuals are risk averse for gains (i.e., they would prefer $10 for sure over a 50/50 of winning $0 or $20) but risk loving over losses (i.e., they would prefer a 50/50 ‘lottery’ of losing $0 or $20 over a sure loss of $10.…

Is Economics a Science?

That is the question addressed by in a paper by Colin Camerer and co-authors in Science. The authors repeated 18 economics experiments conducted in a laboratory setting. These articles were published in leading economics journals including the American Economic Review and the Quarterly Journal of Economics between 2011 and 2014. As The Economist reports, they…

FFS vs. Capitation Reimbursement: Responses by Physicians and Medical Students

How do people respond to financial incentives?  In the medical world, physicians often are paid fee-for-service (FFS) or capitation.  Physicians receiving FFS reimbursement receive additional compensation for each additional service they do.  For instance, physicians under FFS receive twice as much compensation for 2 office visits as they would for 1 office visit.  On the other hand,…

Basket vs. Umbrella clinical trials

How do you determine if a drug is effective?  Typically, biostaticians rely on a randomized control trial where half the patients receive the treatment of interest and the remaining half receive either a placebo or the current standard of care depending on the trial design. Recent advances in cancer, however, call for more sophisticated designs.  Some cancer treatments are only…

Think Aloud: A tool for experimental economists

Are people irrational?  Many economic experiments have shown that people often make seemingly irrational or paradoxical choices.  An article by Ryan, Watson, and Entwistle (Health Econ 2009) probes whether or not people really are irrational using discrete choice experiments (i.e., pick option A or option B).  What they found is that some of the “irrational” behavior is often…

Loss Aversion and Autism

If you have $50, would you rather lose $30 or keep $20.  After a little bit of thought, you probably realize that these are the same thing.  Experimental economists, however, have generally found that individuals will go to great lengths to avoid the $30 loss.   This phenomenon is named  loss aversion.   In prospect theory, loss…