Lecture1B_-_Real_world_decisions

Lecture1B_-_Real_world_decisions - Cost-Effectiveness and...

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Cost-Effectiveness and Decision Making in the Real World Do we behave in a cost-effective manner? Why not?’ o Unintentional deviations from cost-effective action o Intentional deviations from cost-effective action The role of formal analysis in policy development
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Anecdotal Evidence The cost of prenatal care during the first trimester of pregnancy is estimated to be less than the present value of future cost-savings that it produces. Yet 20% of white mothers and 40% of black mothers receive no such care. Each year of life saved by reducing emission of toxic pollutants under the 1990 amendments to the Clean Air Act will cost an estimated $5,000,000.
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Are those just isolated cases? Tammy Tengs performed an analysis of 287 lifesaving interventions: o a simple re-distribution of resources among those programs could result in a long-run gain of over 600,000 life-years each year in the United States, with no net increase in resource consumption o a re-allocation of lifesaving resources to the most cost- effective activities would free up to $31 billion per year in the United States with no net loss of life
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Why? Unintentional biases in human judgment Intentional decisions to depart from what a decision analytic or cost-effectiveness model would suggest is optimal
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Limitations in human judgment Imagine that the U.S. is preparing for the outbreak of an unusual disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Information Given to Group 1 If program A is adopted, 200 people will be saved. If Program B is adopted,
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This note was uploaded on 03/18/2011 for the course ECO 353 taught by Professor Johnrizzo during the Spring '11 term at SUNY Stony Brook.

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Lecture1B_-_Real_world_decisions - Cost-Effectiveness and...

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