We present an integrated valuation model for diseases that pose some chance of death. The model extends the standard one-period value-of-statistical-life model to three health prospects: healthy, ill, and dead. We derive willingness-to-pay values for preven- tion eorts that reduce a disease’s incidence rate as well as for treatments that lower the corresponding health deterioration and mortality rates. We find that the demand value of prevention always exceeds that of treatment. People often overweight small risks and underweight large ones. We use the rank dependent utility framework to explore how the demand for prevention and treatment alters when people evaluate probabilities in a non-linear manner. For incidence and mortality rates associated with common types of cancers, the inverse-S shaped probability weighting found in experimental studies leads to a significant increment in the demand values of both treatment and prevention.
- D11: Consumer Economics: Theory
- D81: Criteria for Decision-Making under Risk and Uncertainty
- I10: General
TSE Working Paper, n. 16-628, February 2016