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

Area of Science:

• Health Economics
• Decision Theory
• Behavioral Economics

Background:

• Standard economic models assume health gains have equal value regardless of baseline health.
• Recent research and theories like GRACE suggest baseline health influences value, especially if individuals are not risk-neutral.
• Empirical evidence questions the assumption of risk-neutral expected utility maximization in health contexts.

Purpose of the Study:

• To empirically estimate utility over health-related quality of life (HRQoL) in a U.S. population.
• To measure individual risk preferences concerning health status.
• To explore the implications of non-linear health utility for economic evaluations and decision-making.

Main Methods:

• Utilized data from a nationally representative U.S. population sample.
• Estimated utility functions based on self-reported HRQoL.
• Calculated risk preferences, including the coefficient of relative risk aversion.

Main Results:

• Individuals exhibit risk-seeking behavior at low health levels.
• Risk aversion emerges at a health status of approximately 0.485 (on a 0-1 scale).
• Maximum risk aversion is observed at perfect health, with a coefficient of relative risk aversion of 4.51.

Conclusions:

• Baseline health status significantly impacts the perceived value of health gains.
• Findings necessitate revisions to cost-effectiveness analyses and health economic theory.
• Understanding risk preferences across the health spectrum is crucial for medical decision-making under uncertainty.