The Ratio Bias Phenomenon: Fact or Artifact?

GATE Working Paper No. 09-25

38 Pages Posted: 9 Dec 2009 Last revised: 15 Apr 2011

See all articles by Mathieu Lefebvre

Mathieu Lefebvre

University of Liege - Research Center on Public and Population Economics

Ferdinand M. Vieider

University of Lyon, CNRS-GATE; German Institute for Economic Research (DIW Berlin); WZB Berlin Social Science Center

Marie Claire Villeval

GATE - CNRS; IZA Institute of Labor Economics

Date Written: November 1, 2009

Abstract

The ratio bias - according to which individuals prefer to bet on probabilities expressed as a ratio of large numbers to normatively equivalent or superior probabilities expressed as a ratio of small numbers - has recently gained momentum, with researchers especially in health economics emphasizing the policy importance of the phenomenon. Although the bias has been replicated several times, some doubts remain about its economic significance. Our two experiments show that the bias disappears once order effects are excluded, and once salient and dominant incentives are provided. This holds true for both choice and valuation tasks. Also, adding context to the decision problem does not change this outcome. No ratio bias could be found in between-subject tests either, which leads us to the conclusion that the policy relevance of the phenomenon is doubtful at best.

Keywords: ratio bias, financial incentives, error rates, experiment

JEL Classification: D03, D81, I19

Suggested Citation

Lefebvre, Mathieu and Vieider, Ferdinand M. and Villeval, Marie Claire, The Ratio Bias Phenomenon: Fact or Artifact? (November 1, 2009). GATE Working Paper No. 09-25, Available at SSRN: https://ssrn.com/abstract=1517791 or http://dx.doi.org/10.2139/ssrn.1517791

Mathieu Lefebvre

University of Liege - Research Center on Public and Population Economics ( email )

B-4000 Liege
Belgium

Ferdinand M. Vieider (Contact Author)

University of Lyon, CNRS-GATE ( email )

93, chemin des Mouilles
Ecully, 69130
France

German Institute for Economic Research (DIW Berlin)

Mohrenstraße 58
Berlin, 10117
Germany

WZB Berlin Social Science Center ( email )

Reichpietschufer 50
D-10785 Berlin, 10785
Germany

Marie Claire Villeval

GATE - CNRS ( email )

35 rue Raulin
LYON, 69007
France
+33 688314656 (Phone)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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