Incorporating sign-dependence in health-related social welfare functions

Abstract

It is important to measure people’s preferences regarding the trade-off between efficiency and equity in health to make public decisions that are in a society’s best interests. This article demonstrates the usefulness of social welfare functions to obtain these measurements. Insights from individual decision making, in particular, prospect theory, turn out to be helpful to estimate societal preferences more accurately. The author shows how one can disentangle the effects of loss aversion in this estimation. The presented approach also allows for sign-dependent societal utility and equity weighting functions. Recent empirical studies that used this approach with choices concerning quality of life of other people reported the presence of substantial inequity aversion both for gains and for losses, as well as loss aversion. Several examples demonstrate the relevance of these insights for preference elicitations and health economic evaluations.

Keywords:

• age discrimination
• equity weighting
• health-related social welfare function
• loss aversion
• prospect theory
• rank-dependent QALY model
• sign-dependence

Financial & competing interests disclosure

This research was made possible through a Grant from The Netherlands Organization for Health Research and Development, project number 152002041. The author has no relevant affiliations or financial involvement with any organization or entity with a financial interest in or financial conflict with the subject matter or materials discussed in the manuscript. This includes employment, consultancies, honoraria, stock ownership or options, expert testimony, grants or patents received or pending, or royalties.

No writing assistance was utilized in the production of this manuscript.

Key issues

• Social welfare functions are a promising concept to represent the public’s preferences for equity and efficiency in health care.

• The rank-dependent quality adjusted life years framework is a powerful tool to elicit the parameters of health-related social welfare functions.

• Reference-dependency is relevant in the elicitation of societal preferences just as it is in individual preference elicitations. It is therefore essential to incorporate this phenomenon in health-related social welfare function elicitation tasks.

• Insights from prospect theory are helpful in this respect.

• This study has shown how these proposed concepts are relevant for preference elicitation and economic evaluation using several concrete examples.

Notes

¹For simplicity, we only consider two groups. Extension to more than two groups is straightforward.

²Of course, one may ask whether policy making should take over this kind of preferences, which might be considered irrational, but that is a normative question, which is beyond the scope of this special report.