An Environmental Scan of Pay for Performance in the Hospital Setting: Final Report. Prospect Theory and the Role of Framing in Decisionmaking

11/01/2007

P4P incentives are designed to change the behavior of providers and the systems in which they operate in ways that will improve quality or efficiency. Various factors, such as the size of the incentive, are likely to influence a hospital and its physicians’ behavioral responses to a P4P program. For example, a large incentive would likely lead to a larger behavioral response than would a small incentive. Another factor is how an incentive is structured, or “framed,” which can determine the behavioral response to it. Prospect theory is an economic theory that attempts to explain how individuals respond to the framing of choices (Kahneman and Tversky, 1979). What follows is a description of several applications of prospect theory and an exploration of the potential implications for structuring a P4P program.

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