Multiplicative Utilities for Health and Consumption

Kenneth C. Lichtendahl () and Samuel E. Bodily ()
Additional contact information
Kenneth C. Lichtendahl: Darden School of Business, University of Virginia, Charlottesville, Virginia 22903
Samuel E. Bodily: Darden School of Business, University of Virginia, Charlottesville, Virginia 22903

Decision Analysis, 2012, vol. 9, issue 4, 314-328

Abstract: Many challenging medical/financial decisions require a decision maker to express preferences for lifetime streams of health and consumption. To express such preferences, we develop two multiplicative utility forms from basic conditions. These forms have many advantages over the leading additive form and extend the way in which life years are adjusted in the popular quality-adjusted life-year model. Unlike additive forms, a decision maker with one of our multiplicative forms can express correlation aversion in consumption streams. In the special case of constant health and consumption streams, our forms reduce to a double exponential utility in life duration. When the decision maker is correlation averse in consumption streams, this form can express risk aversion, decreasing absolute risk aversion and increasing relative risk aversion in life duration. This reduced form under correlation aversion also has standard gamble probabilities (proportional time trade-offs) that increase (decrease) in life duration. In addition, it has standard gamble probabilities that exceed proportional time trade-offs. The properties of this reduced form under correlation seekingness are also examined and discussed in the context of the empirical evidence on attitudes toward risks in life duration, standard gamble probabilities, and proportional time trade-offs.

Keywords: multiattribute utility; health utility analysis; medical decision making; life-cycle consumption planning; standard gamble; time trade-off; QALYs; correlation (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://dx.doi.org/10.1287/deca.1120.0248 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ordeca:v:9:y:2012:i:4:p:314-328

Access Statistics for this article

More articles in Decision Analysis from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().