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Theory and Decision

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06.03.2020

Risk aversion and the value of diagnostic tests

verfasst von: Han Bleichrodt, David Crainich, Louis Eeckhoudt, Nicolas Treich

Erschienen in: Theory and Decision | Ausgabe 2/2020

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Abstract

Diagnostic tests allow better informed medical decisions when there is uncertainty about a patient’s health status and, therefore, about the desirability to undertake treatment. This paper studies the relation between the expected value of diagnostic information and a patient's risk aversion. We show that the ex ante value of diagnostic information increases with risk aversion for diseases with low prevalence, but decreases with risk aversion for diseases with high prevalence. On the other hand, the ex post value of diagnostic information always increases with the patient's degree of risk aversion.

Vorheriger Artikel A new test of convexity–concavity of discount function

Nächster Artikel A modified Monty Hall problem

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See for instance Freixas and Kihlstrom (1984) or Willinger (1989). A summary of the determinants of the value of information is provided in Hilton (1981).

See for example Sandmo (1971) and Ebert et al. (2018).

Allowing for imperfect tests would complicate the analysis and requires using different concepts of risk aversion. We leave this for future research.

Theorem 1 in Jewitt (1987, p. 75) is as follows: Let the distribution functions \(F\) and \(G\) cross exactly once, and suppose that \(G\) crosses \(F\) from below. It follows that \(\int u\mathrm{d}G\ge \int u\mathrm{d}F\) implies \(\int v\mathrm{d}G\ge \int v\mathrm{d}F\) whenever \(u\) and \(v\) are both increasing with \(v\) more risk averse than \(u\) in the sense of Arrow–Pratt.

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Titel: Risk aversion and the value of diagnostic tests
verfasst von: Han Bleichrodt
David Crainich
Louis Eeckhoudt
Nicolas Treich
Publikationsdatum: 06.03.2020
Verlag: Springer US
Erschienen in: Theory and Decision / Ausgabe 2/2020
Print ISSN: 0040-5833
Elektronische ISSN: 1573-7187
DOI: https://doi.org/10.1007/s11238-020-09750-8

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