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A Reference Lottery Metric for Valuing Health

Author

Listed:
  • Wesley A. Magat

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

  • W. Kip Viscusi

    (Department of Economics, Duke University, Durham, North Carolina 27708)

  • Joel Huber

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

Abstract

This study utilizes reference lotteries on life and death to establish a death-equivalent metric for valuing long-term health effects. We use a computer-based survey approach to elicit choices among residential locations that pose different risks of chronic disease and dying in an automobile accident. From paired choices between different locations, we infer their rates of trade-off between reducing the risks of chronic diseases and the automobile death risk. The values of reducing the risks from two diseases, a nerve disease (peripheral neuropathy) and lymphoma (cancer of the lymph system), are measured in terms of both trade-off rates with the risk of an automobile death and with dollars. While the use of reference lotteries for monetary outcomes to establish a utility metric is well established for monetary outcomes, our results suggest that reference lotteries on life and death can also be applied with decision-makers facing realistic choices to construct a utility metric for valuing health status. The results were corroborated by a strong positive correlation between the risk-risk trade-off values and relative aversion scores for the different health outcomes, as well as by the relative values of avoiding the three diseases in our study.

Suggested Citation

  • Wesley A. Magat & W. Kip Viscusi & Joel Huber, 1996. "A Reference Lottery Metric for Valuing Health," Management Science, INFORMS, vol. 42(8), pages 1118-1130, August.
  • Handle: RePEc:inm:ormnsc:v:42:y:1996:i:8:p:1118-1130
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    File URL: http://dx.doi.org/10.1287/mnsc.42.8.1118
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    Keywords

    benefit valuation; health; utility;

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