Making Everyone’s Preferences Count: A Prospect Theory Approach to Valuing Health Improvements / Karen Mulligan, Drishti Baid, Jason N. Doctor, Darius N. Lakdawalla.

Format:

Book

Author/Creator:

Mulligan, Karen.

Contributor:

Baid, Drishti.

Doctor, Jason N.

Lakdawalla, Darius N.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w35666.

NBER working paper series no. w35666

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2026.

Summary:

Health technology assessment bodies and policymakers have grappled with the issue of whose preferences - the general healthy population or the patient population - should be incorporated into traditional cost-effectiveness analysis. This debate arises because healthy individuals and patients often value the same health state differently, and cost-effectiveness will undervalue health-related quality of life (HRQoL) for individuals with chronic illness or disability because it cannot account for adaptation. Prospect theory (PT) provides a framework that permits adaptation since it assumes individuals evaluate outcomes relative to a reference point. We estimate utility over HRQoL in a PT framework in a nationally representative U.S. population and compare directly with utility estimates in an EU framework from the same population. Consistent with previous studies in the monetary and health domains, we find evidence of probability weighting bias and loss aversion over health. Using the PT utility estimates, we demonstrate how PT can be incorporated into healthcare value assessment and present the resulting implications for medical decision making.

Notes:

August 2026.

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