UNCERTAINTY AND THE DECISION MAKER: ASSESSING AND MANAGING THE RISK OF UNDESIRABLE OUTCOMES
Version of Record online: 26 DEC 2012
Copyright © 2012 John Wiley & Sons, Ltd.
Volume 22, Issue 11, pages 1287–1294, November 2013
How to Cite
Gafni, A., Walter, S. and Birch, S. (2013), UNCERTAINTY AND THE DECISION MAKER: ASSESSING AND MANAGING THE RISK OF UNDESIRABLE OUTCOMES. Health Econ., 22: 1287–1294. doi: 10.1002/hec.2883
- Issue online: 16 OCT 2013
- Version of Record online: 26 DEC 2012
- Manuscript Accepted: 10 OCT 2012
- Manuscript Revised: 14 AUG 2012
- Manuscript Received: 30 JAN 2012
- decision making;
- economic evaluation
We present an approach to rank order new programs in ways that accommodate uncertainty of different outcomes occurring, on the basis of the size and nature (‘bad’ or ‘good’) of those outcomes. This represents an improvement on the way uncertainty has been accommodated in existing approaches (e.g., threshold approach to cost-effectiveness analysis). We illustrate the approach using the decision making plane, which explicitly incorporates opportunity costs and relaxes the assumptions of perfect divisibility and constant returns to scale of the cost-effectiveness plane. The nature of the bad (or good) outcome is determined by the quadrant that it falls into (i.e., a ‘quadrant effect’) and its magnitude by its location within the quadrant (i.e., ‘within quadrant effect’). By explicitly defining the loss function, the process of accepting (or rejecting) a new program becomes transparent. We illustrate the approach using a loss function and a net gain function. We show that by recognizing that, not all bad (or good) outcomes are equal and the choice of a loss or a net gain function can result in different ranking of resource allocation options. Further implications of the proposed approach are discussed. Copyright © 2012 John Wiley & Sons, Ltd.