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Abstract

We study risk aversion and prudence in medical treatment decisions. In a laboratory experiment, we investigate the frequency and intensity of second- and third-order risk preferences, as well as the effect of the medical decision context. Risk preferences are assessed through treatment thresholds (the indifference point between not treating and treating). Under diagnostic risk, medical decision theory predicts lower thresholds for risk-averse than risk-neutral decision makers. Given a comorbidity risk, prudent individuals have an even lower threshold. Our results demonstrate risk-averse and prudent behavior in medical decisions, which reduce the (average) treatment threshold by 41% relative to risk neutrality (from 50.0% to 29.3% prevalence rate). Risk aversion accounts for 3/4 of this effect, prudence for 1/4. The medical decision framing does not affect risk aversion, but is associated with more and stronger prudent behavior. These findings have consequences for treatment thresholds, diagnostics, and QALYs, and thus for clinical guidelines.

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Bibliographic Info

Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0321.

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Length: 33 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:rwi:repape:0321

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Related research

Keywords: Medical decision making; treatment thresholds; risk aversion; prudence; laboratory experiment;

Find related papers by JEL classification:

• I10 - Health, Education, and Welfare - - Health - - - General
• C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
• D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

This paper has been announced in the following NEP Reports:

• NEP-ALL-2012-03-21 (All new papers)
• NEP-CBE-2012-03-21 (Cognitive & Behavioural Economics)
• NEP-EXP-2012-03-21 (Experimental Economics)
• NEP-HEA-2012-03-21 (Health Economics)
• NEP-UPT-2012-03-21 (Utility Models & Prospect Theory)

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16. repec:feb:framed:0047 is not listed on IDEAS
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