Prospect theory is the prominent nonexpected utility theory in the estimation of health state preference scores for quality-adjusted life year calculation. Until recently, the theory was not considered to be developed to the point of implementation in economic analysis. This review focuses on the research and evidence that tests the implementation of prospect theory into health state valuation. The typical application of expected utility theory assumes that a decision maker has stable preferences under conditions of risk and uncertainty. Under prospect theory, preferences are dependent on whether the decision maker regards the outcome of a choice as a gain or loss, relative to a reference point. The conceptual preference for standard gamble utilities in the valuation of health states has led to the development of elicitation techniques. Empirical evidence using these techniques indicates that when individual preferences are elicited, a prospect theory consistent framework appears to be necessary for adequate representation of individual health utilities. The relevance of prospect theory to policy making and resource allocation remains to be established. Societal preferences may not need the same attitudes towards risks as individual preferences, and may remain largely risk neutral.