NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Vahid Montazerhodjat

MIT
77 Massachusetts Avenue
Cambridge, MA 02139

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org

NBER Working Papers and Publications

August 2015Is the FDA Too Conservative or Too Aggressive?: A Bayesian Decision Analysis of Clinical Trial Design
with Andrew W. Lo: w21499
Implicit in the drug-approval process is a trade-off between Type I and Type II error. We explore the application of Bayesian decision analysis (BDA) to minimize the expected cost of drug approval, where relative costs are calibrated using U.S. Burden of Disease Study 2010 data. The results for conventional fixed-sample randomized clinical-trial designs suggest that for terminal illnesses with no existing therapies such as pancreatic cancer, the standard threshold of 2.5% is substantially more conservative than the BDA-optimal threshold of 27.9%. However, for relatively less deadly conditions such as prostate cancer, 2.5% is more risk-tolerant or aggressive than the BDA-optimal threshold of 1.2%. We compute BDA-optimal sizes for 25 of the most lethal diseases and show how a BDA-informed ap...
 
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