We developed a method using the Analytic Hierarchy Process (AHP) to evaluate the psychological factors of family caregivers of patients with dementia. Further, the family caregivers were questioned on their policy pertaining to the living place of the patients: at their home, nursing home, or hospital. We made inquiries of sixty-two families, resulting in twenty-eight desiring care at home, twenty desiring a nursing home, and fourteen desiring care at a hospital. The more the quality of life was valued, the more the family preferred care at home (r = 0.42). In contrast, the higher the concern regarding the burden of care was, the more the family preferred hospitalization (r = 0.49). This approach was useful in formulating decisions regarding a care policy for older people. Assessment of the psychological factors of family caregivers may provide clues for solving problems in decisions regarding care policy.