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Your Money or Your Life: A Prescriptive Model for Health, Safety, and Consumption Decisions

Author

Listed:
  • James E. Smith

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

  • Ralph L. Keeney

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

Abstract

In this paper we develop a conceptual framework and model for valuing risks to an individual's health and life and to support decision making about investments in health, quality of life, and safety. Our treatment of health risks in the model builds on the popular quality-adjusted-life-year (QALY) framework that balances health quality and length of life issues. We extend this framework to consider financial concerns as well as health quality and length of life. Our model considers uncertainty in income and health and incorporates the decision maker's ability to adjust consumption over time in response to changes in expectations about health and income. We use this model to study the optimal tradeoffs between financial gains or losses and improvements or reductions in health or longevity and apply it in two example medical decision problems.

Suggested Citation

  • James E. Smith & Ralph L. Keeney, 2005. "Your Money or Your Life: A Prescriptive Model for Health, Safety, and Consumption Decisions," Management Science, INFORMS, vol. 51(9), pages 1309-1325, September.
  • Handle: RePEc:inm:ormnsc:v:51:y:2005:i:9:p:1309-1325
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    File URL: http://dx.doi.org/10.1287/mnsc.1050.0402
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    References listed on IDEAS

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    1. William J Furlong & David H. Feeny & George W. Torrance & Ronald D. Barr, 2001. "The Health Utilities Index (HUI®) System for Assessing Health-Related Quality of Life in Clinical Studies," Centre for Health Economics and Policy Analysis Working Paper Series 2001-02, Centre for Health Economics and Policy Analysis (CHEPA), McMaster University, Hamilton, Canada.
    2. Bleichrodt, Han & Quiggin, John, 1999. "Life-cycle preferences over consumption and health: when is cost-effectiveness analysis equivalent to cost-benefit analysis?," Journal of Health Economics, Elsevier, vol. 18(6), pages 681-708, December.
    3. Bleichrodt, Han & Quiggin, John, 2002. "Life-cycle preferences over consumption and health: a reply to Klose," Journal of Health Economics, Elsevier, vol. 21(1), pages 167-168, January.
    4. John M. Miyamoto & Peter P. Wakker & Han Bleichrodt & Hans J. M. Peters, 1998. "The Zero-Condition: A Simplifying Assumption in QALY Measurement and Multiattribute Utility," Management Science, INFORMS, vol. 44(6), pages 839-849, June.
    5. repec:aph:ajpbhl:1987:77:11:1417-1426_6 is not listed on IDEAS
    6. James E. Smith, 1998. "Evaluating Income Streams: A Decision Analysis Approach," Management Science, INFORMS, vol. 44(12-Part-1), pages 1690-1708, December.
    7. Ronald A. Howard, 1984. "On Fates Comparable to Death," Management Science, INFORMS, vol. 30(4), pages 407-422, April.
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    Citations

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    Cited by:

    1. Savage David A., 2016. "Surviving the Storm: Behavioural Economics in the Conflict Environment," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 22(2), pages 105-129, April.
    2. Bruno S. Frey & David A. Savage & Benno Torgler, 2009. "Surviving the Titanic Disaster: Economic, Natural and Social Determinants," School of Economics and Finance Discussion Papers and Working Papers Series 245, School of Economics and Finance, Queensland University of Technology.
    3. Strand, Jon, 2006. "Valuation of environmental improvements in continuous time with mortality and morbidity effects," Resource and Energy Economics, Elsevier, vol. 28(3), pages 229-241, August.
    4. Donnelly, Catherine & Guillén, Montserrat & Nielsen, Jens Perch, 2014. "Bringing cost transparency to the life annuity market," Insurance: Mathematics and Economics, Elsevier, vol. 56(C), pages 14-27.
    5. Han Bleichrodt & Ulrich Schmidt & Horst Zank, 2009. "Additive Utility in Prospect Theory," Management Science, INFORMS, vol. 55(5), pages 863-873, May.
    6. Richard Cookson & Owen Cotton-Barrett & Matthew Adler & Miqdad Asaria & Toby Ord, 2016. "Years of good life based on income and health: Re-engineering cost-benefit analysis to examine policy impacts on wellbeing and distributive justice," Working Papers 132cherp, Centre for Health Economics, University of York.
    7. Baruch Keren & Joseph Pliskin, 2011. "Optimal timing of joint replacement using mathematical programming and stochastic programming models," Health Care Management Science, Springer, vol. 14(4), pages 361-369, November.

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