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Higher-Order Risk Preferences – Consequences for Test and Treatment Thresholds and Optimal Cutoffs

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  • Felder, Stefan
  • Mayrhofer, Thomas

Abstract

Higher-order risk attitudes include risk aversion, prudence, and temperance. This paper analyzes the eff ects of such preferences on medical test and treatment decisions, represented either by test and treatment thresholds or - if the test characteristics are endogenous - by the optimal cutoff value for testing. For a risk-averse decision maker, treatment is a risk reducing strategy since it prevents the low health outcome that forgoing treatment yields in the sick state. As compared to risk neutrality, risk aversion thus reduces both the test and the treatment threshold and decreases the optimal cutoff . Prudence is relevant if a comorbidity risk applies in the sick state. It leads to even lower thresholds and a lower optimal cutoff . Finally, temperance plays a role if the comorbidity risk is left-skewed. It lowers the thresholds and the optimal cutoff even further. These findings suggest that diagnostics in low prevalence settings (e.g. screening) are considered more beneficial when higher-order risk preferences are taken into account.

Suggested Citation

  • Felder, Stefan & Mayrhofer, Thomas, 2011. "Higher-Order Risk Preferences – Consequences for Test and Treatment Thresholds and Optimal Cutoffs," Ruhr Economic Papers 287, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:287
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    References listed on IDEAS

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    Cited by:

    1. Yoichiro Fujii & Yusuke Osaki, 2018. "Regret-sensitive treatment decisions," Health Economics Review, Springer, vol. 8(1), pages 1-8, December.
    2. Timo Heinrich & Thomas Mayrhofer, 2018. "Higher-order risk preferences in social settings," Experimental Economics, Springer;Economic Science Association, vol. 21(2), pages 434-456, June.
    3. repec:zbw:rwirep:0508 is not listed on IDEAS
    4. Miriam Krieger & Thomas Mayrhofer, 2012. "Patient Preferences and Treatment Thresholds under Diagnostic Risk – An Economic Laboratory Experiment," Ruhr Economic Papers 0321, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    5. Han Bleichrodt & David Crainich & Louis Eeckhoudt & Nicolas Treich, 2020. "Risk aversion and the value of diagnostic tests," Theory and Decision, Springer, vol. 89(2), pages 137-149, September.
    6. Thomas Mayrhofer & Hendrik Schmitz, 2020. "Prudence and prevention - Empirical evidence," Working Papers CIE 134, Paderborn University, CIE Center for International Economics.
    7. Mayrhofer, Thomas & Krieger, Miriam, 2012. "Patient Preferences and Treatment Thresholds under Diagnostic Risk: An Economic Laboratory Experiment," VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62033, Verein für Socialpolitik / German Economic Association.
    8. Christophe Courbage & Béatrice Rey, 2016. "Decision Thresholds and Changes in Risk for Preventive Treatment," Health Economics, John Wiley & Sons, Ltd., vol. 25(1), pages 111-124, January.
    9. David Crainich & Louis Eeckhoudt & Mario Menegatti, 2019. "Vaccination as a trade-off between risks," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 5(3), pages 455-472, October.
    10. Stefan Felder & Thomas Mayrhofer, 2018. "Threshold analysis in the presence of both the diagnostic and the therapeutic risk," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 19(7), pages 1019-1026, September.
    11. Timo Heinrich & Thomas Mayrhofer, 2014. "Higher-order Risk Preferences in Social Settings - An Experimental Analysis," Ruhr Economic Papers 0508, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    12. Stephen G. Pauker, 2014. "Moments When Utilities Are Functional," Medical Decision Making, , vol. 34(1), pages 4-7, January.
    13. Heinrich, Timo & Mayrhofer, Thomas, 2014. "Higher-order Risk Preferences in Social Settings - An Experimental Analysis," Ruhr Economic Papers 508, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
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    More about this item

    Keywords

    Medical decision making; diagnostic risk; test and treatment thresholds; optimal cutoff; risk aversion; prudence; Medical decision making; diagnostic risk; test and treatment thresholds; optimal cutoff; risk aversion; prudence;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • I10 - Health, Education, and Welfare - - Health - - - General

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