DEPARTMENT OF PSYCHOLOGY WELLCOME DEPARTMENT OF IMAGING NEUROSCIENCE The Price of Pain and the Value of Suffering Ivo Vlaev, Ben Seymour, Ray Dolan, Nick Chater

A cynic is a man who knows the price of everything and the value of nothing (Oscar Wilde)

ECONOMICS ASSUMES ENDOGENOUS PREFERENCES AND STABLE TRADE-OFFS BETWEEN GOODS AND MONEY Yet psychophysics suggests that for many sensory quantities –Poor representations of absolute magnitudes –Judged in relation to other similar quantities recently encountered –70dB tone sounds louder after 50dB tone than after 90dB tone Perception and judgment of economic variables are influenced by the same factors that influence the perception of sensory quantities

DO THESE RELATIVISTIC PRINCIPLES AND OBSERVATIONS APPLY TO VALUATION JUDGMENTS? Oscar Wilde tells us that we may not need to know the value of something if we know its price The existing evidence cannot be directly applied due to market signals This study tested preference formation at its very root – when people –Experience stimuli for very first time –Make real monetary valuations

AUCTION-BASED HEALTH MARKET EXPERIMENT ASKED PEOPLE TO PAY MONEY TO AVOID PAINFUL ELECTRICAL SHOCKS Why using pain (relief)? –Tangible to common experience but different from everyday stimuli –Can be evaluated and ‘consumed’ immediately –Consistently judged as aversive across people –Resistant to habituation Observing relativistic effects would imply that the price consumers pay for health may be determined by: –Current context –Recent experiences

EACH TRIAL INVOLVED BUYING RELIEF IN A COMPUTERISED SECOND PRICE AUCTION

WE USED THREE PAIN LEVELS AND TWO MONETARY ENDOWMENTS PER TRIAL (40p OR 80p)

AVERAGE PRICE OFFERS DEPEND ON CONTEXT PAIRING AND ENDOWMENT: FAILURE OF RATIONALITY AND AGGREGATION? Failure of rationality as the foregone good is the same? Failure of aggregation to the rest of the person's health and finances? 40p80p

THE ESTIMATED DEMAND CURVES FOR RELIEF OF MEDIUM PAIN EXHIBIT THE SAME CONTEXT EFFECTS Quantity of Pain Relief Expected to Sell at Different Prices Quantity Context effects (~50%)

CONCLUSIONS Human brain cannot translate experiential representations into money –Knowledge of the market price determines our willingness to pay –Once the price is taken away we are lost in our valuations –Prices are NOT derived from genuine fundamental values Relativistic judgment biases can emerge when economists and policy makers –Quantify adverse clinical states (compensation for injury) –Determine the market price of medications –Estimate cost-effectiveness of clinical treatments (Quality Adjusted Life Years QALYs)

The End Thank You Very Much!