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The ratio bias phenomenon: fact or artifact?

Lefebvre, M., Vieider, F. M. and Villeval, M. C. (2010) The ratio bias phenomenon: fact or artifact? Theory and Decision, 71 (4). pp. 615-641.

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Official URL: http://link.springer.com/article/10.1007/s11238-01...

Abstract/Summary

The ratio bias—according to which individuals prefer to bet on probabilities expressed as a ratio of large numbers to normatively equivalent or superior probabilities expressed as a ratio of small numbers—has recently gained momentum, with researchers especially in health economics emphasizing the policy importance of the phenomenon. Although the bias has been replicated several times, some doubts remain about its economic significance. Our two experiments show that the bias disappears once order effects are excluded, and once salient and dominant incentives are provided. This holds true for both choice and valuation tasks. Also, adding context to the decision problem does not alter this finding. No ratio bias could be found in between-subject tests either, which leads us to the conclusion that the policy relevance of the phenomenon is doubtful at best.

Item Type:Article
Refereed:Yes
Divisions:Faculty of Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
ID Code:54869
Uncontrolled Keywords:D-03, D-81, Economic Theory, Error rates, experiment, Financial incentives, Game Theory, Economics, Social and Behav. Sciences, Game Theory/Mathematical Methods, I-19, Methodology of the Social Sciences, Operations Research/Decision Theory, Ratio bias

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