Risk aversion and the value of diagnostic tests

Han Bleichrodt; David Crainich; Louis Eeckhoudt; Nicolas Treich

doi:10.1007/s11238-020-09750-8

Risk aversion and the value of diagnostic tests

Han Bleichrodt, David Crainich^*, Louis Eeckhoudt, Nicolas Treich

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

3 Citations (Scopus)

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.

Original language	English
Pages (from-to)	137-149
Number of pages	13
Journal	Theory and Decision
Volume	89
Issue number	2
DOIs	https://doi.org/10.1007/s11238-020-09750-8
Publication status	Published - 1 Sept 2020

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AU - Treich, Nicolas

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N2 - 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.

AB - 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.

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KW - Value of information

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Risk aversion and the value of diagnostic tests

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