Addressing Risk Preferences in Cost-Effectiveness Analyses

Graff Zivin, J and J Bridges, “Addressing Risk Preferences in Cost-Effectiveness Analyses,” Applied Health Economics and Health Policy 1(2002): 135-139.

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Cost-effectiveness analysis is a form of economic evaluation that compares the costs and effectiveness of health interventions, where effectiveness is measured in a single scale. Despite the growth in the popularity of cost-effectiveness analysis, very few cost-effectiveness analyses adequately measure and account for uncertainty. In the health economics literature, two schools of thought are emerging. The first takes a statistical approach to uncertainty by focusing on the likelihood that a decision making error will be made. The second approach applies and develops economic theories of risk preference that consider the welfare implications for a patient when they are presented with interventions that have uncertain health outcomes. Cost-effectiveness analyses need to account for risk preferences if they claim to be increasing patient welfare