Basic Tools in Economics: Preferences, Expected Utility, Risk Aversion and Prudence

Stefan Felder () and Thomas Mayrhofer ()
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Stefan Felder: University of Basel
Thomas Mayrhofer: Stralsund University of Applied Sciences

Chapter Chapter 3 in Medical Decision Making, 2022, pp 23-52 from Springer

Abstract: Abstract We present basic tools in economics, including the expected utility theory, which is the basic normative theory for decisions under uncertainty. This theory finds application in the concept of quality-adjusted life years (QALYs), which is nowadays the standard measure for the evaluation of medical services. We also discuss the notion of risk aversion, which is rarely addressed explicitly in the medical literature. Prudence is a related concept which is also important for an understanding of physician behavior. Like risk aversion, it helps to explain, why some health interventions, such as screening programs, are publicly promoted even though the corresponding prior probability of disease often is very low.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-662-64654-0_3

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DOI: 10.1007/978-3-662-64654-0_3

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