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2023 OHE Annual Report to the Charity Commission
Kahneman’s legacy in health economics
Daniel Kahneman (1934 – 2024) was a Nobel Prize-winning psychologist known for his pioneering work in behavioural economics.
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His research in the 1970s with Amos Tversky resulted in the development of prospect theory, which directly challenged the assumptions that underlie expected utility theory (Kahneman & Tversky, 1979).
This research had clear links to health economics, given that the quality-adjusted life year (QALY) model is based upon expected utility theory. To this day, researchers continue to explore the extent to which the methods we use in health economics align with prospect theory (Lipman et al., 2019).
Kahneman also contributed to health economics in other ways. Following a collaboration with Paul Dolan in the early 2000s, Dolan and Kahneman described different types of utility, considered their relative merits, and reflected on the implications for how health economists generate QALYs (Dolan and Kahneman, 2008).
The two types of utility considered were decision utility and experienced utility. Put simply, decision utility refers to the preference for an outcome, whereas experienced utility refers to the hedonic experience of an outcome. The utilities that health economists used at that time to generate QALYs were typically decision utilities based on the preferences of the general population. In their article in The Economic Journal, Dolan and Kahneman advocated for a shift towards measuring experienced utility. Although research has since been conducted to examine experienced utility (Burström et al., 2020; Huang et al., 2024), relatively little has changed in practice since then.
In June 2007, Kahneman reflected on this research when he gave OHE’s 14th Annual Lecture. In his lecture, which followed the article in The Economic Journal, Kahneman expressed that he believed both decision and experienced utility matter.
Kahneman concluded the lecture with the following:
“Ultimately, the issue of how to measure health states is a policy issue, which has to be decided as other policy issues are decided. The decision utilities and the experience utilities we measure will be inputs to that decision. Once we admit that there is no single number that is the utility of a health state, someone has to make the difficult choices. I would lay that problem at the feet of the policy decision-maker rather than pretend that survey respondents can solve it.”
This pragmatic conclusion is just as relevant now as it was in 2007. With the recent focus on producing utilities for children’s health states and the range of normative issues this introduces, stakeholder engagement is now increasingly common in this context (Nazari et al., 2022; Xie et al., 2024). Stakeholders are also actively engaged in the ongoing (adult) EQ-5D-5L valuation study for the United Kingdom. There is momentum here that could, and based on Kahneman’s conclusion, arguably should, be built upon.
In Kahneman’s later years he focused on happiness and life satisfaction, noting that happiness is momentary and fleeting, whereas life satisfaction is a longer-term feeling that is largely comparative. Health economists regularly reflect on the underlying constructs that should be reflected in outcome measures. For example, when considering the benefits of infertility treatment, should we consider the impact on health-related quality of life, as is conventional (Skedgel et al., 2023)? If not, what is the alternative? In this case, based on Kahneman’s research, we may be better off focusing on life satisfaction.
Daniel Kahneman’s research has had a substantial impact on the field of health economics, and there is still much for us to learn from his work.
A detailed obituary was published in The Washington Post.
You can read a transcript of Daniel Kahneman’s 2007 OHE Annual Lecture below.
QALYs versus Experience: A Perspective from Experimental Economics
References
Burström, K., Teni, F. S., Gerdtham, U.-G., Leidl, R., Helgesson, G., Rolfson, O., & Henriksson, M. (2020). Experience-Based Swedish TTO and VAS Value Sets for EQ-5D-5L Health States. PharmacoEconomics, 38(8), 839–856.
Dolan, P., & Kahneman, D. (2008). Interpretations of utility and their implications for the valuation of health. Economic Journal, 118(525), 215–234.
Huang, L., Devlin, N., Chen, G., & Dalziel, K. (2024). A happiness approach to valuing health states for children. Social Science & Medicine, 348, 116802.
Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica: Journal of the Econometric Society, 47(2), 263–291.
Lipman, S. A., Brouwer, W. B. F., & Attema, A. E. (2019). QALYs without bias? Nonparametric correction of time trade-off and standard gamble weights based on prospect theory. Health Economics, 28(7), 843–854.
Nazari, J. L., Pickard, A. S., & Gu, N. Y. (2022). Findings from a Roundtable Discussion with US Stakeholders on Valuation of the EQ-5D-Y-3L. PharmacoEconomics, 40(Suppl 2), 139–146.
Skedgel, C., Cubi-Molla, P., Mott, D., Gameiro, S., Boivin, J., Al-Janabi, H., Brazier, J., Markert, M., Andersson, F. L., & Jofre-Bonet, M. (2023). Unmet Parenthood Goals, Health-Related Quality of Life and Apparent Irrationality: Understanding the Value of Treatments for Infertility. PharmacoEconomics – Open, 7(3), 337–344.
Xie, F., Xie, S., Pullenayegum, E., & Ohinmaa, A. (2024). Understanding Canadian stakeholders’ views on measuring and valuing health for children and adolescents: a qualitative study. Quality of Life Research. https://doi.org/10.1007/s11136-024-03618-y
