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Muenning P Decision Analytic Modeling. In: Kris Heggenhougen and Stella
Quah, editors International Encyclopedia of Public Health, Vol 2. San Diego:
Academic Press; 2008. pp. 71-76.

Author's personal copy

D
Decision Analytic Modeling
P Muenning, Columbia University, New York, NY, USA
2008 Elsevier Inc. All rights reserved.

Introduction
Life is full of uncertainties. You could invest in a mutual
fund or a certificate of deposit account. You could buy a
home or rent. You could go to public health school or
write a novel.
If you knew the risks and benefits of each alternative,
the decision would be a lot easier. Decision analysis provides a mathematical framework for making decisions
under conditions of uncertainty. Lets see how this works
by using an example.
Imagine that you have $100 000 to invest. Youve always
wanted to study public health, but youve also dreamed
about writing a novel ever since you were in college. If
you write a novel, you reason, you can simply invest the
money in a mutual fund and earn interest, making small
withdrawals as needed. Since you are undecided between
the two options, you decide to examine which will be the
better option financially.
Decision analysis is based on a concept called expected
value, in which the value of an uncertain event (such as
making $10 000 in the stock market) is weighed against the
chances that the event will occur. For example, if you know
that the historical average increase in a particular mutual
fund is 10% per year, then the expected value of the return
on your $100 000 investment is 0.1 ! $100 000 $10 000
over one year.
You set your sights five years down the road and assume
that if you go to public health school, all of the $100 000
would be spent on your education after living expenses are
taken into account, but you would be able to earn about
$50 000 per year working in public health. After taxes and
living expenses, you estimate that you would save about
$10 000 over the 3 years after graduation.
If you decide to write a novel, you will have spent your
$100 000, along with the interest on the mutual fund, on
living expenses over the 5-year period. But if you publish
the novel, you could earn an additional $30 000. Your

college English professor advises you that there is about

a 1% chance that you will be published. Therefore, the
invest and write option will produce a probabilistically
weighted return of $30 000 ! 0.01 $300.
Since $10 000 is more than $300, you might go for the
career in public health. However, you might not be satisfied
with your calculations; there is a chance that the mutual
fund could do very well, but there is also a chance that you
could lose money. If it does well, you could end up with
leftover money from your mutual fund investment at the
end of 5 years. So if you write the book, you might make
money even if you dont publish (perhaps better than
spending it on tuition). But if the mutual fund loses
money, you might not be able to finish your novel,
which would be quite depressing.
There is also a chance that you will not find a job right
out of public health school, which would also be discouraging. Ideally, you would want to have a rough idea not
only of the difference in earnings associated with each
decision, but also the difference in utility, or happiness.
This way, youll not only have a better idea of which
decision is riskiest, but youll also know the chances of
your relative satisfaction with each choice.
The various options that one is deciding between are
called competing alternatives. Decision analysis can thus
be described as the process of making an optimal choice
among competing alternatives under conditions of uncertainty (Gold et al., 1996).
In public health or medicine, decision analysis is most
commonly employed in cost-effectiveness analyses. Here,
the competing alternatives are the different health interventions under study. Therefore, rather than net improvement in cash flow and personal utility, cost-effectiveness
analysis provides the user with information on incremental
costs and health gains.
In the past, researchers performing a cost-effectiveness
analysis had to write a computer program that would
calculate the cost and effectiveness of different medical

71
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72

Decision Analytic Modeling

interventions, or attempt to do so by using a spreadsheet

program. Today, most cost-effectiveness analyses can be
easily assembled with decision analysis software.
Decision analysis software provides a graphical framework for estimating the costs and effectiveness values (usually represented as quality-adjusted life years, or QALYs)
associated with a given medical or public health strategy.
Lets take a look at a concrete example of how this works in
public health.

Decision Analysis Models

In Figure 1, we wish to compare two strategies for dealing
with influenza virus during the flu season. The first is to
provide supportive care to people who become ill
(Muennig and Khan, 2001). The second is to attempt to
prevent infection with an influenza vaccination.
In this figure, the two alternatives are represented in
branches separated by a square called a decision node.
The decision node is like a referee holding the competing
alternatives apart as they set out to do battle. Following
this square, youll see a circle. The circle is called a chance
node. A chance node is followed by two or more possible
outcomes. In Figure 1, the outcomes are remains well
and becomes ill.
Notice that each remains well and becomes ill
branch in the decision analysis tree is associated with a
cost and a probability. In the supportive care option, the
cost associated with remaining well is $0. But in the
vaccinate option, everyone gets a $10 influenza vaccine
at the start of influenza season. Thus, whether or not folks
receiving the vaccine would have gotten sick, they must
pay for the vaccination.
However, vaccination greatly reduces the chances of
becoming ill during influenza season. If, during the average season, there is a 10% chance of developing the flu
among unvaccinated persons, there is only a 3% chance
of developing the flu among vaccinated persons. Moreover, among those who get sick despite vaccination, the

Supportive care

Remains well
Cost = $0
0.9
Becomes ill
Cost = 83

Vaccination

0.1
Remains well
Cost = $10
0.97
Becomes ill
Cost = $38

Cost

Cost

Cost

Cost

0.03
Figure 1 Decision analysis tree comparing supportive care to
vaccination.

infection will be much less severe. Therefore, the costs

will be lower. (In Figure 1, those becoming ill incur a cost
of $83 if unvaccinated and $38 if vaccinated.)
So, how does this work? The model merely provides a
framework for calculating probabilistically weighted costs.
Thus, we see that there is a 0.97 ! $10 0.03 ! $38 $11
average cost among those receiving vaccination, and a
0.1 ! $84 0.9 ! $0 $8 average cost among those
receiving supportive care alone.
Note that Figure 1 only deals with costs for simplicity.
Moreover, it is a bit simplistic in other ways; there is a lot
more uncertainty associated with these two competing
alternatives than simply remaining well or becoming ill.
Figure 2 presents a more complete representation of
the decision between supportive care and vaccination.
Here, we see that someone who becomes ill has a chance
of seeing a doctor or being hospitalized. As before, the risk
of each is much lower among vaccinated persons.
There are a few things to note about Figure 2. First, the
costs are represented as running totals. It is not necessary
to set up a decision analysis model this way, but it helps to
illustrate a key point; each event is associated with a cost,
and that cost is added to the events that preceded it. Thus,
the cost at the end of each branch in the tree represents the
probabilistically weighted cost of a given pathway of
events. Thus, the initial cost of becoming ill along the
top branch is $12 (the cost of over-the-counter medications). Since there is only a 10% chance of incurring this
cost, the average cost will be 0.1 ! $12 $1.20. But if the
person sees a doctor, the cost will be $110 ! 0.2 $22, and
this gets added to the $1.20, for a running total of $23.20 at
the sees doctor event in the pathway.
The second thing to note about Figure 2 is that all
costs are incurred at one point in time. In other words, we
calculate the average cost of each of the events in the
pathway as if they happened in one day. This is fine for a
disease like influenza, which tends to make someone ill for
a short time. However, it might not work so well for
cancer, which, depending on the type of cancer a person
has, can drag on for many years. We return to this problem
in the next section.
The above example provides an illustration of how
decision analysis modeling works. As you can see, decision analysis provides probabilistically weighted values of
a series of outcomes of interest. The average value of any
competing option is called its expected value. Although
all trees provide a probabilistically weighted expected
value, different models arrive at this value in very different ways.
Types of Decision Analysis Models
There are different types of decision analysis models
(Gold et al., 1996). The type of model that analysts choose
depends on the problem under evaluation.

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Decision Analytic Modeling

Remains well
Cost = Cost + 0

73

Cost

0.9
Hospitalized
Supportive care
Sees doctor
Cost = Cost + 110
0.2
Becomes III

Cost = Cost + 5000

Cost

0.01
Not hospitalized
Cost = Cost + 0

Cost

0.99

Cost = Cost + 12

Hospitalized

0.1
No doctor
Cost = Cost + 0
0.8

Cost = Cost + 5000

0.01
Not hospitalized
Cost = Cost + 0

Cost

Cost

0.99
Remains well

Cost

Cost = Cost + 0
0.97
Hospitalized
Vaccination
Sees doctor

Cost = Cost + 10

Cost = Cost + 110

0.1
Becomes III

Cost = Cost + 5000

Cost

0.001
Not hospitalized
Cost = Cost + 0

Cost

0.999

Cost = Cost + 12

Hospitalized

0.03
No doctor
Cost = Cost + 0
0.9

Cost = Cost + 5000

Cost

0.001
Not hospitalized
Cost = Cost + 0

Cost

0.999
Figure 2 A more complete decision analysis tree comparing supportive care to vaccination.

Simple decision trees

The most basic is a simple decision tree, such as the one

presented in the above example. Simple decision trees are
usually employed to examine events that will occur in the
near future. They are therefore best suited to evaluate
interventions to prevent or treat illnesses of a short duration, such as acute infectious diseases (Muennig et al.,
1999). They may also be used to evaluate chronic diseases
that may be cured (for example, by surgical intervention).
When these trees are used to evaluate diseases that change
over time, they sometimes become too unruly to be useful.
Markov modeling

For chronic or complex diseases, it is best to use a state

transition model, also known as a Markov model

(Sonnenberg and Beck, 1993). This type of model allows

the researcher to incorporate changes in health states over
time into the analysis. For example, if a person has cancer,
there is a chance that the person will recover within a year
and then relapse. There is also a chance that the person
will remain sick for some time or will die soon.
With every passing year, the cost of treatment changes.
More importantly, the chances of survival, recovery, or
deterioration change. Markov models allow researchers
to track changes in the quality of life, the quantity of life,
and the cost of a disease over time when different health
interventions are applied (Sonnenberg and Beck, 1993).
Most interventions in public health or medicine that
target diseases have some component of time to them. To
model screening mammography, for instance, it is necessary

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Decision Analytic Modeling

to have some way to measure the progression of breast

cancer over time. This way, differences in the progression
of disease can be compared when treated and when left
untreated.
Using a Markov model, we can incorporate a temporal
element into our decision analysis model (Sonnenberg
and Beck, 1993). Markov models count the years that
accrue as the model completes cycles and the medical
costs, living costs, and changes in health-related quality of
life scores over these years. Of course, days, months, or
decades can be modeled, too.
For instance, suppose we are interested in calculating
the lifelong cost associated with breast cancer in patients
who have been diagnosed via a screening mammogram.
We would start the model by using the average age of
onset of breast cancer. The number of survivors would be
determined by using the probability of death specific to
women who have been diagnosed with breast cancer via
screening mammography. Each patient who is still living
at the end of the year gains 1 year of additional life
(1 person-year). But she can also be assigned medical
costs, home health-care costs, transportation costs, and
so forth. Women who die do not accrue such costs, so
these women gain neither a year of life nor any costs.
Thus, if the average annual cost of living with breast
cancer were $10 000, a group of 10 women would incur a
cost of 10 ! $10 000 $100 000 in year 1. Now imagine
that by year 2, one woman died. Thus, year 2 costs would
be 9 ! $10 000 $90 000. If we continued this process
until the last subject died, we would not only have the
average number of life years lived, but we would also have
the total cost incurred by these women over that period.
(See Table 1.)
In this example, we are measuring various relevant
health outcomes over a discrete interval of time. We know
that the average woman lived 48 years of life/10 women
4.8 years over the 6-year interval. The average cost of this
treatment was $450 000/10 women $45 000.
In a Markov model, Table 1 is represented graphically
as a chain of events rather than a table. This makes
sense given that, for most diseases, subjects do not merely
Table 1
Progression of a cohort of 10 women with breast
cancer over a 6-year period

Year

Women surviving

1
2
3
4
5
6
Total

10
9
8
7
6
5

Years lived in
intervala

Cost of treating
breast cancer

10
9.5
8.5
7.5
6.5
5.5
48

$100 000
$90 000
$80 000
$70 000
$60 000
$50 000
$450 000

progress slowly toward death due to the disease under

study. Rather, they can become better, die from other
causes, or develop other diseases.
Thus, to model events that unfold over time realistically, we will want some sort of recursive component in
our model. A recursive event is one that repeats over and
over (see Figure 3). Thus, at the end of each year of a
subjects life, he or she is assigned a cost value and a QALY
value, and then reenters the next year of life (or dies). This
process is repeated until all subjects are dead or the
evaluation period ends.
As in the examples evaluating influenza infection via
simple decision analysis trees discussed previously, each
arrow in Figure 3 is assigned a probability value. For
instance, the likelihood of remaining well over any given
year might be 0.98 in the typical cohort of healthy persons.
Markov models can also be used to simulate the life
experience of the average individual with a particular
disease before and after treatment, the health effects of a
particular medical intervention, or even the benefits of
having health insurance over a lifetime (Mandelblatt et al.,
2004; Muennig et al., 2004, 2005).
For instance, we might wish to compare the advantages
of folate supplementation to no intervention. Since folate
prevents birth defects, one branch of the model might
record the health-related quality of life and health costs of
the average infant with a spinal cord defect as time progressed. In the other branch, we might simulate the healthrelated quality of life and health costs of the typical baby
without a spinal cord defect as time progressed. As in the

Well
1 QALY
$0

Sick
0.5 QALY
$10 000

Dead
0 QALY
$0

Figure 3 Conceptual representation of a Markov model.

Subjects who are well can remain well, become sick (e.g., from
breast cancer), or can die (e.g., from an accident) over the course
of a year. Likewise, subjects who are sick can remain sick,
become well, or die. This process is repeated, accruing a mean
cost and QALY value. (Each arrow represents a transition
probability over the course of 1 year.)

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table above, each would account for differences in mortality

rates, and thus calculate the average life expectancy of each
group. The model would then tell us the differences in
QALYs and costs over the entire lifetime of babies who
did and did not have a spinal cord defect.
Worked examples of Markov models can be found at
http://www.pceo.org/. This site provides free self-instruction manuals and links to government websites that provide data free of charge.

Sensitivity Analysis
The value of decision analysis model inputs can be very
difficult to establish with absolute certainty. For instance,
health-related quality of life scores a key ingredient in
the calculation of QALYs can be obtained from various
instruments, each producing a slightly different number
(Gold and Muennig, 2002). Because these differences
arise due to differences in the way the studies are
designed, they represent a form of nonrandom error.
Most model inputs will be derived from a sample, and
therefore also contain random error.
We can usually guess the range of plausible values
within which the true value might lie. For instance, looking through the literature, we might see that the healthrelated quality of life score for the disease we are studying
varies by roughly 20% when using different instruments.
We might also know the standard error in datasets or
published values.
The inputs we are least likely to be certain about are
the assumptions we have made. In the earlier influenza
example, we might have made an assumption about the
amount of time it takes for a nurse to administer the
influenza vaccine. There are other values that we might
be fairly confident about, such as the cost of the influenza
vaccine itself. (The average wholesale price is usually easy
to get.)
The parameters the researcher is least certain about
should be tested over the widest range of values (because
it is plausible that the values are much higher or much
lower than our baseline estimate). Parameters that the
researcher is somewhat more confident about can be
tested over a narrower range of values. When a particular
strategy remains dominant over the range of plausible
values for the inputs that we are uncertain about, the
model is said to be robust.
There are many different ways of testing variables in a
sensitivity analysis. These include a one-way (univariate)
sensitivity analysis, in which a single variable is tested
over its range of plausible values while all other variables
are held at a constant value; a two-way (bivariate) sensitivity analysis, in which two variables are simultaneously
tested over their range of plausible values while all others
are held constant; a multi-way sensitivity analysis, in

Cost of strategy (expected value)

Decision Analytic Modeling

75

$90.00
$80.00
$70.00
$60.00
$50.00
$40.00
$30.00
$20.00
$10.00
$0.00
6.99

13.96 20.92 27.89 34.86 41.82 48.79

Vaccine cost
Support

Treat

Vaccinate

Figure 4 One-way sensitivity analysis examining how the cost

of providing the influenza vaccine influences a vaccination,
supportive care, and treatment intervention.

which more than two variables are tested; and a tornado

analysis (or influence diagram), in which each variable is
sequentially tested in a one-way sensitivity analysis. The
tornado analysis is used to rank order the different variables in order of their overall influence on the magnitude
of the model outputs.
Figure 4 presents a typical one-way sensitivity analysis. Returning to the influenza example above, lets assume
that we wish to know how changes in the estimated value
of the vaccine cost will influence the overall expected
value of each strategy.
In this instance, well add a treatment arm (there are
anti-influenza drugs that can be used to treat the infection
in early stages). Because the cost of the vaccine does not
influence other arms of the analysis, we see that their
expected value is not influenced by changes in the cost
of the influenza vaccine.
Ideally, we would want to generate some estimate of
the impact of all sources of error in the study on the cost
and effectiveness values generated by the decision analysis model. One way to generate such an estimate is via
Monte Carlo simulation (Halpern et al., 2000). Named
after the famous gambling enclave, this type of analysis
allows for the generation of a single confidence interval
around multiple variables.
In a Monte Carlo simulation, a hypothetical cohort of
subjects enters into the decision analysis model. As subjects
pass through the model, they encounter a number of different probabilities such as the chance of developing influenza-like illness, the chance of seeing a doctor, the chance of
being hospitalized, and so on. Each time a subject encounters one of these variables, the value that the variable
assumes is determined by its probability distribution.
The net result is a weighted mean value for each
sampled distribution of each subject randomly entered
into the model. (Although this isnt exactly the way

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Decision Analytic Modeling

that the models are always calculated, it is the easiest way

to think about it.) The final standard error associated with
all subjects who pass through the model is the overall
standard error of all of the distributions sampled.
The basic theory of cost-effectiveness analysis, decision
analysis modeling, health-related quality of life scores, and
data collection can be found in a number of books and
textbooks (Drummond et al., 2005; Muennig, 2007). The
methods for standardizing cost-effectiveness analysis are
also available in book form (Gold et al., 1996).

Summary
Decision analysis is a formalized approach to making optimal choices under conditions of uncertainty. It allows the
user to enter costs, probabilities, and health-related quality
of life values among other inputs of interest, and then
calculates probabilistically weighted means of these outcome measures. In public health, these outcome measures
usually include costs and QALYs. Typically, therefore, decision analysis is the heart of cost-effectiveness analyses in
public health and medicine (Gold et al., 1998).
However, just about any outcome measure can be modeled, including vaccine-preventable illnesses averted,
deaths avoided, and so forth. Therefore, local health departments, pharmaceutical companies, or other agencies can use
decision analysis for internal decision-making processes.
Decision analysis is often used by non-health businesses
interested in deciding whether they should release a product, perform internal restructuring, and so forth.
One great strength of decision analysis modeling is that
it allows for the calculation of a range of possible values
around a given mean. This approach, called sensitivity
analysis, allows the user to better understand the chances
that he or she will make a bad decision if a given strategy
is taken.
Decision analysis, like cost-effectiveness analysis, is
highly dependent on the accuracy and completeness of
model inputs, as well as the assumptions that the analysts
make. Drugs can have unforeseen side effects, or interventions can have long-term costs that may not be apparent to the analysts. Any of these effects can lead to
suboptimal outcomes.
For instance, the optimal treatment strategy for tuberculosis in most instances is a low-cost combination of
medications that can be effectively delivered in developing
countries. By using the most cost-effective medications, it
is possible to maximize the number of lives saved within a
given budget. However, as Farmer points out, these medications will be wasted if delivered to populations with a
high percentage of drug-resistant tuberculosis (Farmer,
2004). Therefore, decision analysis and cost-effectiveness
analysis must be viewed as an adjunct to optimal decision
making rather than the final word in health policy.

See also: Children and Adolescents, Measuring the

Quality of Life of; Comparative Risk Assessment;
International Classification Systems for Health;
Measurement and Modelling of Health-Related Quality
of Life; The Measurement and Valuation of Health for
Economic Evaluation.

Citations
Drummond MF, OBrien BO, Stoddart GL, and Torrance GW (2005)
Methods for the Economic Evaluation of Health Care Programmes,
3rd edn. London: Oxford University Press.
Farmer P (2004) Pathologies of Power: Health, Human Rights, and the
New War on the Poor. Berkeley, CA: University of California Press.
Gold M, Siegel J, Russell L, and Weinstein M (1996) Cost-Effectiveness
in Health and Medicine. New York: Oxford University Press.
Gold MR, Franks P, McCoy KI, and Fryback DG (1998) Toward
consistency in cost-utility analyses: Using national measures to
create condition-specific values. Medical Care 36(6): 778792.
Gold MR and Muennig P (2002) Measure-dependent variation in burden
of disease estimates: Implications for policy. Medical Care 40(3):
260266.
Halpern EF, Weinstein MC, Hunink MG, and Gazelle GS (2000)
Representing both first- and second-order uncertainties by Monte
Carlo simulation for groups of patients. Medical Decision Making
20(3): 314322.
Mandelblatt JS, Schechter CB, Yabroff KR, et al. (2004) Benefits and
costs of interventions to improve breast cancer outcomes in African
American women. Journal of Clinical Oncology 22(13): 25542566.
Muennig P (2007) Cost-Effectiveness Analysis in Health, a Practical
Approach. San Francisco, CA: Jossey-Bass.
Muennig P, Pallin D, Sell RL, and Chan MS (1999) The cost
effectiveness of strategies for the treatment of intestinal parasites in
immigrants. New England Journal of Medicine 340(10): 773779.
Muennig P, Pallin D, Challah C, and Khan K (2004) The costeffectiveness of ivermectin vs. albendazole in the presumptive
treatment of strongyloidiasis in immigrants to the United States.
Epidemiology and Infection 132(6): 10551063.
Muennig P, Franks P, and Gold M (2005) The cost effectiveness of
health insurance. American Journal of Preventive Medicine 28(1):
5964.
Muennig PA and Khan K (2001) Cost-effectiveness of vaccination
versus treatment of influenza in healthy adolescents and adults.
Clinical and Infectious Disease 33(11): 18791885.
Sonnenberg FA and Beck JR (1993) Markov models in medical decision
making: A practical guide. Medical Decision Making 13(4): 322338.

Further Reading
Drummond MF, OBrien BO, Stoddart GL, and Torrance GW (2005)
Methods for the Economic Evaluation of Health Care Programmes,
3rd edn. London: Oxford University Press.
Gold MR, Siegel JE, Russell LB and Weinstein MC (eds.) (1996)
Cost-Effectiveness in Health and Medicine. New York: Oxford
University Press.
Hunink M, Glasziou P, Siegel JE, et al. (2001) Decision Making in Health
and Medicine. Cambridge, UK: Cambridge University Press.
Muennig P (2002) Designing and Conducting Cost-Effectiveness
Analysis in Health and Medicine. San Francisco, CA: Jossey-Bass.
Muennig P (2007) Cost-Effectiveness Analysis in Health, a Practical
Approach. San Francisco, CA: Jossey-Bass.
Sonnenberg FA and Beck JR (1993) Markov models in medical decision
making: A practical guide. Medical Decision Making 13(4): 322.
Weinstein MC, Fineberg HV, Elstein AS, et al. (1980) Clinical Decision
Analysis. Philadelphia, PA: W. B. Saunders.

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