Incorporating sign-dependence in health-related social welfare functions

It is important to measure people’s preferences regarding the trade-off between efficiency and equity in health to make public decisions that are in a society’s best interests. This article demonstrates the usefulness of social welfare functions to obtain these measurements. Insights from individual decision making, in particular, prospect theory, turn out to be helpful to estimate societal preferences more accurately.
The author shows how one can disentangle the effects of loss aversion in this estimation. The presented approach also allows for sign-dependent societal utility and equity weighting functions. Recent empirical studies that used this approach with choices concerning quality of life of other people reported the presence of substantial inequity aversion both for gains and for losses, as well as loss aversion.
Several examples demonstrate the relevance of these insights for preference elicitations and health economic evaluations.