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Alcohol myopia and choice

Author

Listed:
  • Alejandro Tatsuo Moreno Okuno

    (Departamento de Economía y Finanzas. Universidad de Guanajuato)

  • Emiko Masaki

    (Asian Development Bank)

Abstract

The aim of this paper is to develop a model that explains how the consump-tion of some addictive substances affects individuals’ choices and especially how it af-fects individuals’ risk taking. We do this by assuming that some addictives substances, specifically alcohol, increase individuals’ discount of the future. As individuals that consume alcohol show greater preference for the present and less for the future, they would find choices with rewards in the present and costs in the future more attrac-tive. Therefore, an individual that wouldn’t have accepted an option may do so after consuming alcohol and he/she may regret his/her decision after the alcohol in his/her blood is eliminated. We analyze the effect of two taxes in the welfare of individuals that face an attractive but harmful choice: a tax on the consumption of alcohol and a tax (or penalty) if the future costs of the choice are realized.

Suggested Citation

  • Alejandro Tatsuo Moreno Okuno & Emiko Masaki, 2013. "Alcohol myopia and choice," EconoQuantum, Revista de Economia y Finanzas, Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia., vol. 10(2), pages 35-54, Julio – D.
    • Handle: RePEc:qua:journl:v:10:y:2013:i:2:p:35-54
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    References listed on IDEAS

    as
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    3. Jonathan Gruber & Sendhil Mullainathan, 2006. "Do Cigarette Taxes Make Smokers Happier?," Palgrave Macmillan Books, in: Yew-Kwang Ng & Lok Sang Ho (ed.), Happiness and Public Policy, chapter 6, pages 109-146, Palgrave Macmillan.
    4. B. Douglas Bernheim & Antonio Rangel, 2004. "Addiction and Cue-Triggered Decision Processes," American Economic Review, American Economic Association, vol. 94(5), pages 1558-1590, December.
    5. Gruber, Jonathan & Koszegi, Botond, 2004. "Tax incidence when individuals are time-inconsistent: the case of cigarette excise taxes," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1959-1987, August.
    6. Dockner, Engelbert J & Feichtinger, Gustav, 1993. "Cyclical Consumption Patterns and Rational Addiction," American Economic Review, American Economic Association, vol. 83(1), pages 256-263, March.
    7. Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 675-700, August.
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    More about this item

    Keywords

    Habit-formation; risk taking; alcohol consumption.;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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