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Watchfully waiting: Medical intervention as an optimal investment decision

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  • Meyer, Elisabeth
  • Rees, Ray

Abstract

Watchfully waiting involves monitoring a patient's health state over time and deciding whether to undertake a medical intervention, or to postpone it and continue observing the patient. In this paper, we consider the timing of medical intervention as an optimal stopping problem. The development of the patient's health state in the absence of intervention follows a stochastic process (geometric Brownian motion). Spontaneous recovery occurs in case the absorbing state of “good health” is reached. We determine optimal threshold values for initiating the intervention, and derive comparative statics results with respect to the model parameters. In particular, an increase in the degree of uncertainty over the patient's development in most cases makes waiting more attractive. However, this may not hold if the patient's health state has a tendency to improve. The model can be extended to allow for risk aversion and for sudden, Poisson-type shocks to the patient's health state.

Suggested Citation

  • Meyer, Elisabeth & Rees, Ray, 2012. "Watchfully waiting: Medical intervention as an optimal investment decision," Journal of Health Economics, Elsevier, vol. 31(2), pages 349-358.
    • Handle: RePEc:eee:jhecon:v:31:y:2012:i:2:p:349-358
    DOI: 10.1016/j.jhealeco.2012.02.002
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    2. de Mello-Sampayo, F.;, 2024. "Uncertainty in Healthcare Policy Decisions: An Epidemiological Real Options Approach to COVID-19 Lockdown Exits," Health, Econometrics and Data Group (HEDG) Working Papers 24/01, HEDG, c/o Department of Economics, University of York.
    3. Bahnsen, Lewe, 2022. "Kostenbeteiligungen, Wartezeiten, Leistungsumfang - Ein europäischer Vergleich der Gesundheitssysteme," WIP-Analysen Februar 2022, WIP – Wissenschaftliches Institut der PKV.
    4. Felipa de Mello-Sampayo, 2022. "On the timing and probability of Presurgical Teledermatology: how it becomes the dominant strategy," Health Care Management Science, Springer, vol. 25(3), pages 389-405, September.
    5. Felipa, de Mello-Sampayo, 2014. "The Timing and Probability of Switching to Second-line Regimen - An application to Second-Line Antiretroviral Therapy in India," MPRA Paper 60997, University Library of Munich, Germany.
    6. Bolin, Kristian & Caputo, Michael R., 2021. "Non-life-threatening ailments and rational patience when expected treatment outcomes are continuously improving," Journal of Health Economics, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    Watchfully waiting; Real options; Medical decision making;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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