Effects of baseline risk information on social and individual choices

Abstract

This article analyzes preferences for risk reductions in the context of individual and societal decision making. The effect of information on baseline risk is analyzed in both contexts. The results indicate that if individuals are to imagine that they suffer from 1 low-risk and 1 high-risk ailment, and are offered a specified identical absolute risk reduction, a majority will ceteris paribus opt for treatment of the low-risk ailment. A different preference structure is elicited when priority questions are framed as social choices. Here, a majority will prefer to treat the high-risk group of patients. The preference reversal demonstrates the extent to which baseline risk information can influence preferences in different choice settings. It is argued that presentation of baseline risk information may induce framing effects that lead to nonoptimal resource allocations. A solution to this problem may be to not present group-specific baseline risk information when eliciting preferences.