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Updated: Oct 4, 2025

Measuring the Subjective Value of Risky and Ambiguous Options using Experimental Economics and Functional MRI Methods
Published on: September 19, 2012
Cost‑Effectiveness Risk‑Aversion Curves: Comparison of Risk-Adjusted Performance Measures and Expected-Utility
1Merck & Co., Inc., Kenilworth, NJ, USA. elamin_elbasha@merck.com.
Abstract:
Accounting for risk attitudes in medical decision making under uncertainty has attracted little research. A recent proposal recommended using the results of a cost-effectiveness analysis to construct a cost-effectiveness risk-aversion curve (CERAC) to inform risk-averse decision makers choosing among healthcare programs with uncertain costs and effects. The CERAC is based on a risk-adjusted performance measure widely used in financial economics called the Sortino ratio. This paper evaluates the CERAC based on the Sortino ratio, derives its various properties, discusses the implications of using it to inform decision making under uncertainty, and compares it with the expected-utility approach. Analytic formulae for the CERAC, relating it to the means and standard deviations of costs and effects of a healthcare program, are derived for both approaches. Compared with the expected-utility approach, the CERAC based on the Sortino ratio implicitly assumes that the decision maker is highly risk averse.
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