Real and hypothetical endowment effects when exchanging lottery tickets: Is regret a better explanation than loss aversion?

The Legacy of Peter Fishburn: Foundational Work and Lasting Impact

Peter Fishburn has had a tremendous impact on the field of decision analysis, developing ideas that would come to be foundational across decision analysis and that would impact the literature on decision making in economics, psychology, finance, engineering, and mathematics. This paper provides an overview of his legacy. We summarize 11 of his influential papers. We then trace his impact on recent research in topics including preference representation and elicitation, risk attitudes, time preferences, health preferences, behavioral decision making, social choice and voting, and geometric analyses.

Supplemental Material: The online appendix is available at https://doi.org/10.1287/deca.2022.0461 .

How value-based policy interventions influence price negotiations for new medicines: An experimental approach and initial evidence

BACKGROUND

Various forms of value-based pricing policies for new medicines have recently been introduced in OECD countries. While these initiatives are expected to have a positive impact on societal outcomes such as availability, affordability and value for money, scientific evidence on this impact is scarce due to confidential agreements.

OBJECTIVE

We aimed to assess the impact of value-based policy interventions in price negotiations on patient benefit in an experimental setting.

METHODS

An online experiment was conducted (n = 269). Participants were randomly assigned into the active role of either a buyer or seller in two intervention groups (cost-benefit, risk-sharing) and one control group. Decisions had real monetary consequences on other participants and through donations to a patient association.

RESULTS

Patient access, benefit and value for money were higher in the cost-benefit group than in the risk-sharing group. An available alternative to the agreement led to higher price offers. This effect was weaker in the cost-benefit group.

CONCLUSIONS

Outcomes of price negotiations on patient benefit depend on the alternatives available for failed or delayed negotiations. A shared but voluntary valuation framework might increase patient access, benefit, and value for money. The cost containment effect of risk-sharing agreements may be offset by the negative impact on overall patient benefit. Further development of the approach could provide support for policy design of pharmaceutical pricing regulations.

The impact of reimbursement negotiations on cost and availability of new pharmaceuticals: evidence from an online experiment

BACKGROUND

The necessity to measure and reward "value for money" of new pharmaceuticals has become central in health policy debates, as much as the requirement to assess the "willingness to pay" for an additional, quality-adjusted life year (QALY). There is a clear need to understand the capacity of "value-based" pricing policies to impact societal goals, like timely access to new treatments, sustainable health budgets, or incentivizing research to improve patient outcomes. Not only the pricing mechanics, but also the process of value assessment and price negotiation are subject to reform demands. This study assesses the impact of a negotiation situation for life-extending pharmaceuticals on societal outcomes. Of interest were general effects of the bargaining behaviour, as well as differences caused by the assigned role and the magnitude of prices.

METHODS

We ran an online experiment (n = 404) on Amazon Mechanical Turk (MTurk). Participants were randomly assigned into four treatment groups for a reimbursement negotiation between two roles (health minister, pharma representative) in two price framings. Payoff to players consisted of a fixed salary and a potential bonus, depending on their preferences, their price offer and the counter offer of a randomly paired negotiation partner. Success had real social consequences on other MTurk users (premium payers, investors) and via donations to a patient association.

RESULTS

Margins between reservation prices and price offers increased throughout the game. Yet, 47% of players reduced at least once and 15% always their bonus probability to zero in favour of an agreement. 61% of simulated negotiation pairs could have reached an agreement, based on their preferences. 63% of these were successful, leaving 61% of patients with no access to the new treatment. The group with "real world" prices had lower prices and less agreements than the unconverted payoff group. The successful markets redistributed 20% of total assets from premium payers to investors over five innovation cycles.

CONCLUSIONS

The negotiation situation for pharmaceutical reimbursement has notable impact on societal outcomes. Further research should evaluate policies that align preferences and increase negotiation success.

Valuing Facebook

In recent years, there has been a great deal of discussion of the welfare effects of digital goods, including social media. A national survey, designed to monetize the benefits of a variety of social media platforms (including Facebook, Twitter, YouTube and Instagram), found a massive disparity between willingness to pay (WTP) and willingness to accept (WTA). The sheer magnitude of this disparity reflects a ‘superendowment effect’. Social media may be Wasting Time Goods – goods on which people spend time, but for which they are not, on reflection, willing to pay much (if anything). It is also possible that in the context of the WTP question, people are giving protest answers, signaling their intense opposition to being asked to pay for something that they had formerly enjoyed for free. Their answers may be expressive, rather than reflective of actual welfare effects. At the same time, the WTA measure may also be expressive, a different form of protest, telling us little about the actual effects of social media on people's lives and experiences. It may greatly overstate those effects. In this context, there may well be a sharp disparity between conventional economic measures and actual effects on experienced well-being.