ISPOR Annual International Meeting
Plenary Session
May 24, 2016
Douglas E. Hough, Ph.D.
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The neoclassical economics approach
◦ Internal consistency of choice (Arrow)
◦ Self-interest maximization (Becker)
◦ Maximization in general (Posner)
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The annoying anomalies
◦ The Allais paradox
◦ Bounded rationality (Simon)
◦ Quasi rationality (Thaler)
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Mainstream
All participants are
rational
All participants know
their preferences
All participants have full
information
Preferences are pathindependent
Deviations from rational
choice are random
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Behavioral Economics
Participants are not
always rational
Participants learn their
preferences through
experience
Asymmetric information
abounds
Preferences are pathdependent
Deviations from rational
choice can be systematic
A Caveat
“Think how hard physics would
be if particles could think.”
- Murray Gell-Mann
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Loss Aversion
Endowment Effect
Framing
Power of the Default/Opt-In vs. Opt-Out
Hyperbolic Discounting
System 1 vs. System 2 thinking
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Presentation 1
• Surgery: “Of 100 people
having surgery 90 live
through the post-operative
period, 68 are alive at the
end of the 1st year and 34 are
alive at the end of 5 years”
• Radiation therapy: “Of 100
people having radiation
therapy all live through the
therapy period, 77 are alive
at the end of the 1st year and
22 are alive at the end of 5
years”
Presentation 2
• Surgery: “Of 100 people
having surgery 10 die during
surgery or the post-operative
period, 32 die by the end of
the 1st year and 66 die by the
end of 5 years”
• Radiation therapy: “Of 100
people having radiation
therapy none die during the
therapy period, 23 die by the
end of the 1st year and 78 die
by the end of 5 years”
McNeil, B., Pauker, S., Sox, H., & Tversky, A. (1982). On the elicitation of
preferences for alternative therapies. NEJM, 306(21), 1259-1262.
Effective consent %
100
80
60
40
20
0
Johnson, E. J., & Goldstein, D. (2003). Do defaults save lives? Science,
302(5649), 1338-1339.
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SO WHAT????
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http://www.choosingwisely.org/doctor-patient-lists/
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Willingness to pay ≠ Willingness to accept
If people don’t have strong preferences,
decisions can be swayed by framing and
defaults
If people can’t accurately predict future
preferences, . . .
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Behavioral economics is not a magic bullet
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