An Economic Model for Relative Importance∗

The theory of competing causes involves assessing a cause of failure, such as death due to heart disease or cancer, in the presence of other competing causes. In this paper, we develop a fundamental economic model for examining the degree and order of importance in a competing cause framework. In particular, we demonstrate the usefulness of Von Neumann-Morgenstern utility theory in economics by evaluating the effect of a cause when its economic loss is eliminated. A quantity called the ratio of relative importance (RRI) is defined to measure the relative importance of a competing cause. We find that this quantity is a function of several factors that do indeed affect the “riskiness” of a competing cause relative to the other causes. These factors include the amounts of economic loss, the probabilities of failure associated with each cause, and the utility function that defines the risk aversion behavior of the decision maker. We are able to further demonstrate that using the ratio, we can develop intuitive explanations as to how one would assess the order of importance of one cause relative to another. ∗