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Abstract

Risk attitudes include risk aversion as well as higher-order risk preferences such as prudence and temperance. This article analyzes the effects of such preferences on medical test and treatment decisions, represented either by test and treatment thresholds or—when the test result is not given—by optimal cutoff values for diagnostic tests. For a risk-averse decision maker, effective treatment is a risk-reducing strategy since it prevents the low health outcome of forgoing treatment in the sick state. Compared with risk neutrality, risk aversion thus lowers both the test and the treatment threshold and decreases the optimal test cutoff value. Risk vulnerability, which combines risk aversion, prudence, and temperance, is relevant if there is a comorbidity risk: thresholds and optimal cutoff values decrease even more. Since common utility functions imply risk vulnerability, our findings suggest that diagnostics in low prevalence settings (e.g., screening) may be considered more beneficial when risk preferences are taken into account.

Keywords

decision analysis value of information provider decision making decision rules patient decision making

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Risk Preferences

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