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Cost EffectivenessDecision MakingGuest Post

Behavioural economics on the ward: how economics can help us think about health decisions

By October 2, 2015 No Comments

Making health decisions is not always easy. A patient learning that she has a throat cancer may have to choose between a surgical operation with a high chance of success, but associated with the loss of her vocal cords, and a chemotherapy with a greater chance of failure, but which would allow the patient to keep a “normal” life afterwards. In such a situation, the patient

has to make ‘trade-offs’ and to weigh the gain in probability of being alive (but with an artificially enhanced voice) and the quality of a life with a normal voice. Economics is the science to study such situations. It provides guidance about how to think in those difficult situations.

On September 9th, AusHSI and the QuBE hosted a public lecture from a leading international figure in Economics of Decision Making, Professor Peter Wakker from the Erasmus University at Rotterdam. Having worked 8 years in a hospital, Peter has dedicated an important part of his career to understand the type of decisions described above. Economics is used to handle decisions about money which is a clear measurable quantity. The challenge in many health decisions is to study the trade-offs between “life satisfaction” and “death”. While people care about these greatly, it may seem a priori hard if not impossible to give a value to these and use economics as a tool to help decision making.

Well, Peter Wakker showed us the potential of economics to help here, even in such a complex situation. Suppose an individual has to choose between surgery and chemotherapy and that, for simplicity we know exactly the probabilities of the possible outcomes from past success rates.


Undoubtedly, this is a difficult choice. The patient has to assess her subjective preference between 10% more chance to live with surgery compared with 60% chance to keep her voice after chemotherapy. To help her in the decision process, the economist can ask a few hypothetical questions which will help her get a better feeling for this trade-off. For instance the patient can consider this choice:


Perhaps in such a hypothetical situation

the patient will state preferring Choice 1. If so one can say that she gives a value to a life with artificial voice which is more than 80% of the value of a life with normal voice. Now suppose that

  1. She still chooses Choice 1 when the probability of a life with normal voice is 90% in Choice 2
  2. She switches to preferring Choice 2 if the probability of a life with normal voice is 91%.

Then one can conclude that her choices suggest that she values a life with artificial voice at exactly 90% of the value of a life with normal voice. Using this insight, we can now go back to the actual choice she is facing and use these values to simplify the choice situation.


One can now calculate the expected utility of each choice, using the value of a normal life as a unit of measurement. Assuming for simplicity that the value of death is zero:

  1. The expected utility of Surgery is 0.7*0.9*V=0.63*V
  2. The expected utility of Chemio-therapy is 0.6*V

If the patient wants to maximise her expected utility, this exercise suggests she should choose Surgery. The use of the hypothetical situations has helped shed some light on her subjective valuation of the different outcomes and make them comparable.

Obviously, this is only a way to help the patient make her own decisions. Engaging in these hypothetical choices does not reveal the decision the patient “should” make, but it helped her think about the trade-offs she has to make in clearer terms. If she does not like Choice 2 in this example, she may want to revisit her hypothetical choices and reconsider the implicit values she was putting on the different outcomes.

Such an approach is not only very helpful to assist patients decide about their own health choices, it is also helpful to Health institutions to understand the subjective preferences of patients and allocate resources in ways likely to have the most efficient impact on their life satisfaction.

Professor Lionel Page

Queensland Behavioural Economics group (QuBE) – QUT

A video of Peter’s seminar from the 9th Sept can be viewed below.