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The Validity of QALYs Under Non-Expected Utility

  • Han Bleichrodt
  • Jose Luis Pinto
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    This paper examines applications of non-expected utility in the health domain. The most widely used utility model in health economics, the time-linear QALY model, assumes (i) separability of quality of life and life duration, and (ii) linearity of the utility for life duration. We perform new tests, which are robust to violations of expected utility, of these two assumptions. The data support separability, but show that the utility for life duration is concave rather than linear. The finding of concave utility may not be surprising in itself. The contribution of this paper is to demonstrate this empirically without being invalidated by violations of expected utility.

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    File URL: http://research.barcelonagse.eu/tmp/working_papers/113.pdf
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    Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 113.

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    Date of creation: Feb 2004
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    Handle: RePEc:bge:wpaper:113
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    1. G. Ardine De Wit & Jan J.V. Busschbach & Frank Th. De Charro, 2000. "Sensitivity and perspective in the valuation of health status: whose values count?," Health Economics, John Wiley & Sons, Ltd., vol. 9(2), pages 109-126.
    2. Bleichrodt, Han & Wakker, Peter & Johannesson, Magnus, 1997. "Characterizing QALYs by Risk Neutrality," Journal of Risk and Uncertainty, Springer, vol. 15(2), pages 107-14, November.
    3. Wakker, Peter, 1993. "Additive representations on rank-ordered sets : II. The topological approach," Journal of Mathematical Economics, Elsevier, vol. 22(1), pages 1-26.
    4. Quiggin, John & Horowitz, John, 1995. "Time and Risk," Journal of Risk and Uncertainty, Springer, vol. 10(1), pages 37-55, January.
    5. Bleichrodt, Han & Quiggin, John, 1997. "Characterizing QALYs under a General Rank Dependent Utility Model," Journal of Risk and Uncertainty, Springer, vol. 15(2), pages 151-65, November.
    6. Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
    7. Hammond, P.J. & , ., 1987. "Consequentialist foundations for expected utility," CORE Discussion Papers 1987016, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Philippe Delquié, 1997. ""Bi-Matching": A New Preference Assessment Method to Reduce Compatibility Effects," Management Science, INFORMS, vol. 43(5), pages 640-658, May.
    9. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    10. Cubitt, Robin P & Sugden, Robert, 1998. "The Selection of Preferences through Imitation," Review of Economic Studies, Wiley Blackwell, vol. 65(4), pages 761-71, October.
    11. Wakker, P.P. & Thaler, R.H. & Tversky, A., 1997. "Probabilistic insurance," Discussion Paper 1997-35, Tilburg University, Center for Economic Research.
    12. Karni, Edi & Safra, Zvi, 1989. "Dynamic Consistency, Revelations in Auctions and the Structure of Preferences," Review of Economic Studies, Wiley Blackwell, vol. 56(3), pages 421-33, July.
    13. Abdellaoui, Mohammed & Barrios, Carolina & Wakker, Peter P., 2007. "Reconciling introspective utility with revealed preference: Experimental arguments based on prospect theory," Journal of Econometrics, Elsevier, vol. 138(1), pages 356-378, May.
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