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Rates and Probabilities in Economic Modelling

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  • Rachael Fleurence
  • Christopher Hollenbeak

Abstract

Economic modelling is increasingly being used to evaluate the cost effectiveness of health technologies. One of the requirements for good practice in modelling is appropriate application of rates and probabilities. In spite of previous descriptions of appropriate use of rates and probabilities, confusions persist beyond a simple understanding of their definitions. The objective of this article is to provide a concise guide to understanding the issues surrounding the use of rates and probabilities reported in the literature in economic models, and an understanding of when and how to transform them appropriately. The article begins by defining rates and probabilities and shows the essential difference between the two measures. Appropriate conversions between rates and probabilities are discussed, and simple examples are provided to illustrate the techniques and pitfalls. How the transformed rates and probabilities may be used in economic models is then described and some recommendations are suggested. Copyright Adis Data Information BV 2007

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  • Rachael Fleurence & Christopher Hollenbeak, 2007. "Rates and Probabilities in Economic Modelling," PharmacoEconomics, Springer, vol. 25(1), pages 3-6, January.
    • Handle: RePEc:spr:pharme:v:25:y:2007:i:1:p:3-6
    DOI: 10.2165/00019053-200725010-00002
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    References listed on IDEAS

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    1. Nicky J. Welton & A. E. Ades, 2005. "Estimation of Markov Chain Transition Probabilities and Rates from Fully and Partially Observed Data: Uncertainty Propagation, Evidence Synthesis, and Model Calibration," Medical Decision Making, , vol. 25(6), pages 633-645, November.
    2. Douglas K. Miller & Sharon M. Homan, 1994. "Determining Transition Probabilities," Medical Decision Making, , vol. 14(1), pages 52-58, February.
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