Time preference, the discounted utility model and health.

Area of Science:

• Health Economics
• Decision Science
• Behavioral Economics

Background:

• The constant rate discounted utility (CRDU) model is widely applied in health economics for evaluating healthcare programs.
• CRDU models intertemporal preferences, crucial for assessing long-term health outcomes and interventions.
• However, the normative and descriptive validity of CRDU for health outcomes is questionable.

Purpose of the Study:

• To critically assess the appropriateness of the CRDU model in health care program evaluations.
• To identify limitations of CRDU and variable rate discounted utility (VRDU) models in representing intertemporal health preferences.
• To propose alternative frameworks for incorporating dynamic health preferences.

Main Methods:

• Theoretical analysis of discounted utility models.
• Examination of normative and descriptive adequacy of CRDU for health outcomes.
• Exploration of limitations in VRDU models, including dynamic inconsistency.
• Consideration of alternative preference modeling approaches.

Main Results:

• The CRDU model is found to be inadequate both normatively and descriptively for health outcomes.
• Variable rate discounted utility models offer more flexibility but retain restrictive assumptions and can lead to dynamic inconsistency.
• Existing models struggle to capture the complex, time-varying nature of health preferences.

Conclusions:

• The CRDU model is unsuitable for representing intertemporal health preferences in healthcare evaluations.
• More sophisticated models are needed to accurately reflect how individuals value health over time.
• Future research should focus on models that account for outcome complementarity across time periods.