Overview
A cost-effectiveness analysis is a tool to judge the impact of a policy or decision relative to the costs incurred in enacting it. Specifically, it tends to evaluate the costs monetarily and the effectiveness through a standard non-monetary unit.
For example, the Incremental Cost-Effectiveness Ratio (ICER) metric of a medical intervention that costs 10,000/life-year. This works well when comparing decisions or options that are aimed at influencing the same ends, such as two interventions aimed at expanding someone’s lifespan, but it doesn’t help us compare decisions that aim for different things. Say another medical intervention costs 10,000 per additional life-year to $10,000 per disability-free life-year. The value of a disability-free life-year compared to an additional life-year will depend on each individual’s subjective evaluations of whether they would prefer being free of a health condition to living longer while coping with it.