Prospect Theory and the Corrective Approach: Policy Implications of Recent Developments in QALY Measurement
23 Pages Posted: 23 Jul 2018
Date Written: May 1, 2018
Common health state valuation methodology, such as time trade-off (TTO) and standard gamble (SG), is typically applied under several descriptively invalid assumptions, for example assuming linear QALYs or expected utility (EU) theory. Hence, health state valuation exercises may lead to biased QALY weights. This bias may in turn affect decisions based on economic evaluations using such weights. Methods have been proposed to correct for these biases associated with different health state valuation techniques. In this paper we outline the relevance of prospect theory (PT), which has become the dominant descriptive alternative to EU, for health state valuations and economic evaluations. We provide an overview of work suggesting a solution for the dependence of QALY weights on the chosen methodology. We label this the corrective approach. By quantifying PT parameters, such as loss aversion, probability weighting and non-linear utility, it may be possible to correct TTO and SG for biases, in an attempt to produce more valid estimates of preferences for health states. Through straightforward examples this paper illustrates the effects of this corrective approach. Several unresolved issues currently limit the relevance of corrected weights for policy, these are listed and suggestions for research addressing these issues are provided. However, if validly corrected weights are available, we argue in favor of a deliberative approach to correcting biased health state valuations, in which policy makers utilize corrected weights. Finally we suggest that loss aversion premium for prevented health losses may be applied when deemed relevant.
Keywords: QALY, Time Trade Off, Standard Gamble, Prospect Theory, Loss Aversion
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