Exploring the Reference Point in Prospect Theory: Gambles for Length of Life

Abstract

Attitude toward risk is an important factor determining patient preferences. Risk behavior has been shown to be strongly dependent on the perception of the outcome as either a gain or a loss. According to prospect theory, the reference point determines how an outcome is perceived. However, no theory on the location of the reference point exists, and for the health domain, there is no direct evidence for the location of the reference point. This article combines qualitative with quantitative data to provide evidence of the reference point in life-year certainty equivalent (CE) gambles and to explore the psychology behind the reference point. The authors argue that goals (aspirations) in life influence the reference point. While thinking aloud, 45 healthy respondents gave certainty equivalents for life-year CE gambles with long and short durations of survival. Contrary to suggestions from the literature, qualitative data argued that the offered certainty equivalent most frequently served as the reference point. Thus, respondents perceived life-year CE gambles as mixed. Framing of the question and goals set in life appeared to be important factors behind the psychology of the reference point. On the basis of the authors' quantitative and qualitative data, they argue that goals alter the perception of outcomes as described by prospect theory by influencing the reference point. This relationship is more apparent for the near future as opposed to the remote future, as goals are mostly set for the near future.