School of Economics and Finance

No. 596: Tests of Utility Independence When Health Varies over Time

Anne Spencer , Queen Mary, University of London
Angelo Ranaldo , University of East Anglia

May 1, 2007

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In the conventional QALY model, people's preferences are assumed to satisfy utility independence. When health varies over time, utility independence implies that the value attached to a health state is independent of the health state that arise before or after it. In this paper we set out to test the extent to which utility independence is undermined by sequence and duration effects. Two separate studies were conducted involving a total of 155 respondents. In study one, we conducted 5 tests of utility independence using a standard gamble question. Three of the tests of utility independence were repeated in study two after randomisation was introduced in order to take account of possible ordering effects. Utility independence holds in the majority of cases examined here and so our work generally supports the use of utility independence to derive more tractable models.

J.E.L classification codes: H5, I10

Keywords:Utility independence, QALY