Confusion Of Relative And Absolute Risk In Valuation

Baron, Jonathan, (1997). Confusion Of Relative And Absolute Risk In Valuation. Journal Of Risk And Uncertainty, 14, 3, 301–309.

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Findings: Willingness to pay for intervention affected by both Total Lives Saved (90 vs. 900) but also by Ratio Saved to Diseased (.09 vs. .90)

“Some subjects evaluate health benefits in terms of the proportion of lives saved rather than the number.”

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Numeracy failure and Evaluability bias. Hypothesized, not examined. People are confused by quantities in general, ratio is easy to evaluate

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Subjects were less willing to pay for government medical insurance for diseases when the number of people who

could not be cured was higher, holding constant the number who could be cured. In a second experiment, willingness to pay (from a hypothetical government windfall) for risk reduction was unaffected by whether the risk was described in terms of percentage or number of lives saved, even though subjects knew that the risks in question differed in prevalence. These results are consistent with the findings of Fetherstonhaugh et al., Jenni and Loewenstein, and others. I suggest that these results can be explained in terms of a general tendency to confuse proportions and differences, a confusion that is analogous to other confusions of quantitative dimensions in children, adults, the news media, and perhaps even the epidemiological literature.

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