Time preference, the discounted utility model and health

doi:10.1016/0167-6296(95)00031-3

Journal of Health Economics

Volume 15, Issue 1, February 1996, Pages 49-66

https://doi.org/10.1016/0167-6296(95)00031-3 Get rights and content

Abstract

The constant rate discounted utility model is commonly used to represent intertemporal preferences in health care program evaluations. This paper examines the appropriateness of this model, and argues that the model fails both normatively and descriptively as a representation of individual intertemporal preferences for health outcomes. Variable rate discounted utility models are more flexible, but still require restrictive assumptions and may lead to dynamically inconsistent behaviour. The paper concludes by considering two ways of incorporating individual intertemporal preferences in health care program evaluations that allow for complementarity of health outcomes in different time periods.

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The numerous reports on preference reversals in preference elicitations pose a great challenge to empirical economics. Many studies have found that different tasks may generate substantially different preferences. However, little is known about whether one task is more susceptible to preference reversals than another. Therefore, taking the preference reversals as a robust behavioral pattern, guidelines are called for to provide directions regarding a preferred preference elicitation task. This paper puts forward a new test of the internal consistency of choice and matching tasks, based on “internal preference reversals”. We replicate the preference reversal phenomenon and find a significantly higher consistency within choice tasks than within matching tasks.
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Quality-adjusted life year (QALY) values measured by means of the time tradeoff (TTO) method are often used in economic evaluations. However, these values are mostly not corrected for time preference, i.e., a lower valuation being attached to later life years than to earlier life years, and therefore may underestimate the true QALY weights. Moreover, the magnitude of the underestimation depends on the severity of the health state and the horizon chosen in the TTO method. Hence, we cannot just add a constant component to all existing QALY tariffs. In this study, we estimated the value of correcting TTO scores. We showed the possible consequences for health policymaking when we correct TTO scores for time preference, thereby taking into account severity and horizon.
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This paper describes and employs a new method to correct time tradeoff (TTO)-scores for utility of life duration curvature. In contrast to most previous attempts to do so, it uses a risk-free method that corresponds well to the risk-free properties of the TTO-method. In addition, the method is robust to several biases that occur under methods that incorporate risk. Our results show a significant degree of curvature in utility of life duration and therefore a clear bias in TTO-scores. The risk-free method seems to be useful to correct TTO-scores for this influence and leads to significantly higher quality-adjustment factors.

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Scientific articleTime preference, the discounted utility model and health

Abstract

Journal of Health Economics

Journal of Economic Behavior and Organization

Journal of Public Economics

Journal of Environmental Economics and Management

Journal of Mathematical Psychology

Journal of Health Economics

Economic Letters

Journal of Health Economics

Valuing future benefits

Health Economics

Habit formation: A resolution of the equity premium puzzle

Journal of Political Economy

Representation of preference ordering by a numerical function

Topological methods in cardinal utility theory

Independence in utility theory with whole product sets

Operations Research

Utility theory for decision making

Time preference

International Economic Review

The standard gamble method: What is being measured and how it is interpreted

Health Services Research

Time in health: Can we measure individual's pure time preference?

Medical Decision Making

Risk attitude and time preference in health

Management Science

Expectation and variation in multi-period decisions

Econometrica

Changing tastes and coherent dynamic choice

Review of Economic Studies

An introduction to Bernoullian utility theory: I. Utility functions

Swedish Journal of Economics

Economic analysis and the psychology of utility: Applications to compensation policy

Decisions with multiple objectives: Preferences and value tradeoffs

Stationary ordinal utility and impatience

Econometrica

Representation of preference orderings over time

Stationary utility and time perspective

Econometrica

Scientific article
Time preference, the discounted utility model and health