Risk aversion and the value of diagnostic tests

Abstract

Diagnostic tests allow better informed medical decisions when there is uncertainty about a patient’s health status and, therefore, about the desirability to undertake treatment. This paper studies the relation between the expected value of diagnostic information and a patient's risk aversion. We show that the ex ante value of diagnostic information increases with risk aversion for diseases with low prevalence, but decreases with risk aversion for diseases with high prevalence. On the other hand, the ex post value of diagnostic information always increases with the patient's degree of risk aversion.

JEL codes

Reference

Han Bleichrodt, David Crainich, Louis Eeckhoudt, and Nicolas Treich, “Risk aversion and the value of diagnostic tests”, Theory and Decision, vol. 89, March 2020, pp. 137–149.