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Title:The ratio bias phenomenon: fact or artifact? PDF Logo
Authors:Lefèbvre, Mathieu
Vieider, Ferdinand M.
Villeval, Marie-Claire
Issue Date:2009
Series/Report no.:IZA Discussion Papers 4546
Abstract: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 change this outcome. 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.
Subjects:Ratio bias
financial incentives
error rates
experiment
JEL:C91
D03
D81
I19
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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