Explaining Distortions in Utility Elicitation through the Rank-Dependent Model for Risky Choices

The standard gamble (SG) method has been accepted as the gold standard for the elicitation of utility when risk or uncertainty is involved in decisions, and thus for the measurement of utility in medical decisions. Unfortunately, the SG method is distorted by a general dislike for gambles, the "gambling effect," leading to an overestimation of risk aversion and of utility of impaired health. This problem does not occur for visual analogue scales or the time tradeoff method. For risky decisions, however, the latter methods lack validity. This paper shows how "rank-dependent utility" theory, a newly developed theory in the decision science literature, can provide a new explanation for the gambling effect. Thus it provides a means to correct the SG method and to improve the assessments of quality adjusted life years for medical decisions in which there is uncertainty about outcomes.