EXPLAINING DISTORTIONS IN UTILITY ELICITATION THROUGH THE RANK - DEPENDENT MODEL FOR RISKY CHOICES

The standard gamble (SG) method has been accepted as the ''gold standa rd'' for the elicitation of utility when risk or uncertainty is involv ed in decisions, and thus for the measurement of utility in medical de cisions. It is based on the assumptions of expected-utility theory. Un fortunately, there is now abundant evidence that expected utility is n ot empirically valid, and that the SG method overestimates risk aversi on and the utilities of impaired health states. This paper shows how r ank-dependent utility theory, a newly developed theory in decision sci ence, can explain the main violations or expected utility. Thus it pro vides a means for correcting the SG method and for improving the asses sments of quality-adjusted life years for medical decisions in which t here is uncertainty about outcomes.