State-dependent Utility

Definition

Health Economics

  • The idea that expected utility from consumption in general is not the same if one is (say) well as when one is ill or that the value of health care is not the same if one is well as when one is ill. In other words, the utility of consumption (or investment) is dependent on one's own state (of health, amongst other things) and external characteristics (an ice cream in the rain is not the same thing as an ice cream in the sunshine). The idea also introduces another role for uncertainty, viz. uncertainty about one's health state (how high is my 'bad' cholesterol? Am I a carrier of that gene?) or about the weather (etc.). Oddly, the idea is much less used and discussed in health economics than one might expect.
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