Risk preferences over health: Empirical estimates and implications for medical decision-making

Karen Mulligan, Drishti Baid, Jason N. Doctor, Charles E. Phelps and Darius Lakdawalla

Journal of Health Economics, 2024, vol. 94, issue C

Abstract: Mainstream health economic theory implies that an expected gain in health-related quality of life (HRQoL) produces the same value for consumers, regardless of baseline health. Several strands of recent research call this implication into question. Generalized Risk-Adjusted Cost-Effectiveness (GRACE) demonstrates theoretically that baseline health status influences value, so long as consumers are not risk-neutral over health. Prior empirical literature casts doubt on risk-neutral expected utility-maximization in the health domain. We estimate utility over HRQoL in a nationally representative U.S. population and use our estimates to measure risk preferences over health. We find that individuals are risk-seeking at low levels of health, become risk-averse at health equal to 0.485 (measured on a 0–1 scale), and are most risk-averse at perfect health (coefficient of relative risk aversion = 4.51). We develop the resulting implications for medical decision making, cost-effectiveness analyses, and the proper theory of health-related decision making under uncertainty.

Keywords: Cost-effectiveness; Health technology assessment; Risk aversion; Quality-adjusted life year (search for similar items in EconPapers)
JEL-codes: I1 I13 I18 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhecon:v:94:y:2024:i:c:s016762962400002x

DOI: 10.1016/j.jhealeco.2024.102857

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