Lessons Learned by (from?) an Economist Working in MDM Peter P. Wakker MDM, October 24, Pittsburgh lecture for career achievement award Topic: mutual benefits of interactions between economics & MDM; David Meltzer on Monday: "lack of economists in MDM."

2 Outline 1.Background history on MDM; 2.Background history on Me (Economist) before 1992; 3.Three Surprises Awaiting Me when I Entered MDM in 1992; 4.Three Lessons Learnt from the Surprises. Last lesson will generate speculations on future directions for MDM  Economics

3 1. Background History on MDM MDM took off around 1980: McNeil, Barbara J., Ralph Weichselbaum, & Stephen G. Pauker (1978), “Fallacy of the Five-Year Survival in Lung Cancer,” The New England Journal of Medicine 299, 1397  1401.

Based on ideas of economics (equated with decision theory here) of the 1980s (Keeney & Raiffa 1976), including: expected utility! (cf. HUI). In MDM community I still find the ideas of economics of the 1980s. Economics has changed since. 4

Typical of approach of MDM: take ideas from economics as practical tools, "machines," without much awareness of background theory. MDM'ers just try things out. I call this the black-box approach. (First explained to me by Lia Verhoef in a conversation of 18 years ago.) 5

I worked on prospect theory (Schmeidler 1989; Tversky & Kahneman 1992). Generalizes expected utility.  U :   ,  W : 2 S  [0,1], s.t. (E 1 :x 1, …, E n :x n )   i=1 n (W(E  (i)  …  E  (i) ) – W(E  (i)  …  E  (i–1) ))U(x  (i) ) (with  a permutation such that x  (1)  …  x  (n) ) represents preferences My Background before 1992 In maths and economics.

I did read Weinstein, Fineberg, Elstein, et al. (1980). “Clinical Decision Analysis.” Saunders, Philadelphia. This book brought me in this field. I started in MDM in 1992, at LUMC (Leiden University Medical Center; director: Job Kievit). 7

8 3. Three Surprises Awaiting Me in 1992

9 Surprise 1: on TTO (Time TradeOff) 10 yr blind ~ 9 yr perfect health then quality of being blind = 9/10. I : ???? What about utility of life duration???? Nonlinear????

Any serious theory and some algebra: Q(blind) = U(9yr)/U(10yr). 1 st theoretical problem of TTO: Can't just drop U?? Maybe you say "we don't know U"? Then take best guess! Say U(y yr) = e –0.03y (3% discounting). Surely better than linear! Linear U always underestimates Q(blind)!? My colleague Anne Stiggelbout of LUMC worked on utility correction for TTO in

My expectation in 1992: Explain to MDM once. "Hey there, you forgot utility." 11 MDM'ers will immediately correct mistake and from there on do TTO right (with utility incorporated) for the rest of their lives. Surprise: MDM'ers did not change!?!? I could not believe in (2 nd theoretical problem: U intertemporal  risky U and  U interpersonal-welfare )

3 rd theoretical problem for TTO: SG is much better theoretically. If 12 then (under expected utility) U(blind) = ("SG is gold standard.") blind ~ 90% perfect health 10% †

Despite all these theoretical problems of TTO, MDM just went on, and goes on, to use TTO. Has to do with MDM's black-box approach. More on that later. 13

Surprise 2: on HYE ( Healthy Years Equivalent ) TTO but with risk involved (don't read algebra): 14 Authors claimed they got something new in theory. However, in theory (by "transitivity"), just get TTO data. In theory just very roundabout TTO??? 90% 10 yr per- fect health 10% † Stage 1: 10 yr blind ~ then HYE (10 yr blind) = 9 yr. Stage 2: 90% 10 yr per- fect health 10% † ~ 9 yr perfect health

Theoretically right or wrong: MDM doesn't care. MDM used HYE and tested it empirically. ??? Testing whether = 5 ??? To be rejected immediately! Has to do again with MDM's black-box approach. More on that later. 15

16 Surprise 3: on risky versus riskless utility. Economists: There must be more to risk attitude than "riskless" utility. [Risky utility  riskless utility] ( I skip theory.) Still common thinking in MDM today.

17 "Risky utility  riskless utility" obsolete in modern economics. Reason: Prospect theory. "There must be more to risk attitude than riskless utility" now accommodated through  probability weighting;  loss aversion. These concepts are more valuable than distinction risky  riskless utility. So, distinction obsolete in economics today.

Explanation: MDM took ideas from economics in 1980s. There have been many studies using prospect theory in MDM, to my joy. But it is not yet part of the common thinking on risk attitude. 18

19 4. Lessons Learnt from the Surprises Economists look at machines from the inside, MDM'ers from the outside. Both have pros and cons and can benefit from each other.

Lesson 1: About TTO. After 1990: Economics moved closer to empirical reality: Prospect theory. Nobel-prize in economics in

For SG: all deviations from expected utility generate overestimations; all in same direction. So enormous, dramatic, overestimations there. For TTO: Deviations neutralize each other. So, not so bad. Bleichrodt, Han (2002), “A New Explanation for the Difference between SG and TTO Utilities,” Health Economics 11, 447 

Conclusion: TTO is better. MDM community was right after all! Black-box approach worked better, and I started respecting it. Took me several years to come to understand this. 22

Lesson 2: About HYE. Similar experience, though opposite ending. Reality  theory might still save HYE? Not here. Prospect theory: HYE is even worse than SG. 23

My conclusion for HEY: When HYE could survive for several years in MDM, MDM could have benefited from more economists! Here black-box approach led to a waste of human resources. 24

Lesson 3: About risky versus riskless utility. Prospect theory gives better views on descriptive risk attitude. Components of risk attitude (repeating):  utility;  probabilistic risk aversion (probability weighting) ;  loss aversion;  framing. 25

MDM can benefit from ideas developed in economics after Economics/prospect theory will also benefit much from "black-box" thinking of MDM. Dream for future of QALY: get version of SG that is better than TTO. Leaving risk/utility out as done in TTO cannot be. In long run TTO cannot be ultimate measurement machine. (Here positive inputs from HYE are felt!) Socio-academic lesson: these things take time … 26 Generations?

The End 27

Except that … 28

Proposal: All lectures in MDM are good. Hence, no need to praise every lecture at every question again. Instruct chairmen to discourage praising of lectures. 29