RUHR ECONOMIC PAPERS Patient Preferences and Treatment Thresholds under Diagnostic Risk

We study risk aversion and prudence in medical treatment decisions. In a laboratory experiment, we investigate the frequency and intensity of secondand third-order risk preferences, as well as the eff ect of the medical decision context. Risk preferences are assessed through treatment thresholds (the indiff erence point between not treating and treating). Under diagnostic risk, medical decision theory predicts lower thresholds for risk-averse than risk-neutral decision makers. Given a comorbidity risk, prudent individuals have an even lower threshold. Our results demonstrate risk-averse and prudent behavior in medical decisions, which reduce the (average) treatment threshold by 41% relative to risk neutrality (from 50.0% to 29.3% prevalence rate). Risk aversion accounts for 3/4 of this eff ect, prudence for 1/4. The medical decision framing does not aff ect risk aversion, but is associated with more and stronger prudent behavior. These fi ndings have consequences for treatment thresholds, diagnostics, and QALYs, and thus for clinical guidelines. JEL Classifi cation: I10, C91, D81