Risk preferences over health: Empirical estimates and implications for medical decision-making

Mainstream health economic theory implies that an expected gain in health -related quality of life (HRQoL) produces the same value for consumers, regardless of baseline health. Several strands of recent research call this implication into question. Generalized Risk -Adjusted Cost -Effectiveness (GRACE) demonstrates theoretically that baseline health status influences value, so long as consumers are not risk -neutral over health. Prior empirical literature casts doubt on risk -neutral expected utility -maximization in the health domain. We estimate utility over HRQoL in a nationally representative U.S. population and use our estimates to measure risk preferences over health. We find that individuals are risk -seeking at low levels of health, become risk -averse at health equal to 0.485 (measured on a 0-1 scale), and are most risk -averse at perfect health (coefficient of relative risk aversion = 4.51). We develop the resulting implications for medical decision making, cost-effectiveness analyses, and the proper theory of health -related decision making under uncertainty.