Utility is one of those awkward concepts that is fundamental to economics, but actually rather difficult to define. Utility is important because economists often deal with situations in which things are compared that are not similar. The reason for this is that, when we have constrained resources (e.g. a limited amount of cash), we have to choose what to use those resources on. In healthcare, that may mean choosing between spending money on hospitals or public health interventions, or it may mean choosing between spending clinician time on treating ill patients or filling in paperwork.
To help me understand utility, I think of it as usefulness. This also captures some of the complexity. It is the extent to which a consumer (a horrible word in marketing spiel, but technically accurate for economics) gets satisfaction or usefulness from a thing or a state of affairs.
Satisfaction and usefulness are very difficult to measure directly. First of all, people are not very good at explaining their reasons for decisions because of what Roser and Gazzaniga call ‘the piecemeal and interpretive nature of conscious experience‘. Secondly, there are all sorts of reporting errors that occur when we ask people to admit that they value themselves over other people or choose cars because they look good.
As a result of these difficulties, we usually measure utility indirectly, by asking people questions that show us how they prefer one thing or state over another. This means that utilities are often very similar to preferences, and in many of the situations described on this blog the two expressions can by thought of as synonymous.
Utility in health economics is particularly important because it is one way of looking at quality of life . ‘Quality’ is a very tricky concept, particularly when we are talking about something as emotive as life and death.
Peoples’ preferences or judgements of usefulness for different health states are a way of measuring quality that captures our aims in a health system rather better than alternative measures of quality, such as economic productivity.
The way we use utility when looking at quality of life is to apply it as a weight for periods of time spent in different health states. For example, a person spending 10 years in a health state with a utility weighting of 0.5 would experience 5 quality-adjusted life-years (QALYs).