The Discrepancy between Risky and Riskless Utilities

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Abstract
Utilities differ according to whether they are derived from risky (gamble) and riskless (visual analog scale, time-tradeoff) assessment methods. The discrepancies are usu ally explained by assuming that the utilities elicited by risky methods incorporate atti tudes towards risk, whereas riskless utilities do not. In (cumulative) prospect theory, risk attitude is conceived as consisting of two components: a decision-weight function (attentiveness to changes in, or sensitivity towards, chance) and a utility function (sen sitivity towards outcomes). The authors' data suggest that a framing effect is a hitherto unrecognized and important factor in causing discrepancies between risky and riskless utilities. They collected risky evaluations with the gamble method, and riskless evalu ations with difference measurement. Risky utilities were derived using expected-utility theory and prospect theory. With the latter approach, sensitivity towards outcomes and sensitivity towards chance are modeled separately. When the hypothesis that risky utilities from prospect theory coincide with riskless utilities was tested, it was rejected (n = 8, F(1,7) = 132, p = 0.000), suggesting that a correction for sensitivity towards chance is not sufficient to resolve the difference between risky and riskless utilities. Next, it was assumed that different gain/loss frames are induced by risky and riskless elicitation methods. Indeed, identical utility functions were obtained when the gain/loss frames were made identical across methods (n = 7), suggesting that framing was operative. The results suggest that risky and riskless utilities are identical after correc tions for sensitivity towards chance and framing. Key words: utility assessment; de cision making; risk attitude; framing; risky and riskless utilities. (Med Decis Making 1999;19:435-447)

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