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DEPARTMENT OF PSYCHOLOGY
WELLCOME DEPARTMENT OF IMAGING NEUROSCIENCE
The Price of Pain and the Value of Suffering
Ivo Vlaev, Ben Seymour, Ray Dolan, Nick Chater
A cynic is a man who knows the price of everything and the
value of nothing (Oscar Wilde)
ECONOMICS ASSUMES ENDOGENOUS PREFERENCES AND
STABLE TRADE-OFFS BETWEEN GOODS AND MONEY
•
Yet psychophysics suggests that for many sensory quantities
– Poor representations of absolute magnitudes
– Judged in relation to other similar quantities recently encountered
– 70dB tone sounds louder after 50dB tone than after 90dB tone
•
Perception and judgment of economic variables are influenced by the
same factors that influence the perception of sensory quantities
S ( x)  c
i 1
xi  x1
 (1  c)
n 1
xn  x1
DO THESE RELATIVISTIC PRINCIPLES AND OBSERVATIONS
APPLY TO VALUATION JUDGMENTS?
•
Oscar Wilde tells us that we may not need to know the value of something
if we know its price
•
The existing evidence cannot be directly applied due to market signals
•
This study tested preference formation at its very root – when people
– Experience stimuli for very first time
– Make real monetary valuations
AUCTION-BASED HEALTH MARKET EXPERIMENT ASKED PEOPLE
TO PAY MONEY TO AVOID PAINFUL ELECTRICAL SHOCKS
•
Why using pain (relief)?
– Tangible to common experience but different from everyday stimuli
– Can be evaluated and ‘consumed’ immediately
– Consistently judged as aversive across people
– Resistant to habituation
•
Observing relativistic effects would imply that the price consumers pay for
health may be determined by:
– Current context
– Recent experiences
EACH TRIAL INVOLVED BUYING RELIEF IN A COMPUTERISED
SECOND PRICE AUCTION
You receive 40p
You will receive
a shock
Select price to avoid
15 further shocks
0p
20p
40p
Market price is
determined randomly
0p
time
30p
10p
20p
You offered 14p
Market price was 4p
Sale authorised
Sale price = 4p
WE USED THREE PAIN LEVELS AND TWO MONETARY
ENDOWMENTS PER TRIAL (40p OR 80p)
AVERAGE PRICE OFFERS DEPEND ON CONTEXT PAIRING AND
ENDOWMENT: FAILURE OF RATIONALITY AND AGGREGATION?
70
40p
80p
60
Price Offered
50
40
High
Medium
Low
30
20
10
0
Low-Medium Medium-High Low-Medium Medium-High
Context Condition
•
•
Failure of rationality as the foregone good is the same?
Failure of aggregation to the rest of the person's health and finances?
THE ESTIMATED DEMAND CURVES FOR RELIEF OF MEDIUM
PAIN EXHIBIT THE SAME CONTEXT EFFECTS
Quantity of Pain Relief Expected to Sell at Different Prices
200
vs. Low (80p)
180
Quantity
Quantity
vs. High (80p)
Context effects
(~50%)
160
vs. Low (40p)
140
vs. High (40p)
120
100
80
60
40
20
0
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80
Price (pence)
CONCLUSIONS
•
Human brain cannot translate experiential representations into money
– Knowledge of the market price determines our willingness to pay
– Once the price is taken away we are lost in our valuations
– Prices are NOT derived from genuine fundamental values
•
Relativistic judgment biases can emerge when economists and policy makers
– Quantify adverse clinical states (compensation for injury)
– Determine the market price of medications
– Estimate cost-effectiveness of clinical treatments (Quality Adjusted Life
Years QALYs)
The End
Thank You Very Much!