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Correcting for discounting and loss aversion in composite time trade‐off

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  • Stefan A. Lipman
  • Arthur E. Attema
  • Matthijs M. Versteegh

Abstract

Time trade‐off utilities have been suggested to be biased upwards. This bias is a result of the method being applied assuming linear utility of life duration, which is violated when individuals discount future life years or are loss averse for health. Applying a “corrective approach”, that is, measuring individuals' discount function and loss aversion and correcting time trade‐off utilities for these individual characteristics, may reduce this bias in utilities. Earlier work has developed this approach for time trade‐off in a student sample. In this study, the corrective approach was extended to composite time trade‐off (cTTO) methodology, which enabled correcting utilities for health states worse than dead. In digital interviews a sample of 150 members of the general public completed cTTO tasks for six health states, and afterward they completed measurements of loss aversion and discounting. cTTO utilities were corrected using these measurements under multiple specifications. Respondents were also asked to reflect on and adjust their cTTO utilities directly. Our results show considerable loss aversion and both positive and negative discounting were prevalent. As predicted, correction generally resulted in lower utilities. This was in accordance with the direction of adjustments made by respondents themselves.

Suggested Citation

  • Stefan A. Lipman & Arthur E. Attema & Matthijs M. Versteegh, 2022. "Correcting for discounting and loss aversion in composite time trade‐off," Health Economics, John Wiley & Sons, Ltd., vol. 31(8), pages 1633-1648, August.
    • Handle: RePEc:wly:hlthec:v:31:y:2022:i:8:p:1633-1648
    DOI: 10.1002/hec.4529
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