Smoking, preferences and internalities
Eric Crampton reports a study on the reasons for smoking. It finds that smokers place a lower value on the cost of getting a major lung disease than non-smokers. I really like to see these sorts of studies because differences in preferences are almost impossible to show without them. It’s easy to SAY that smokers just don’t care as much about their health but, unless you have solid evidence, your argument will usually be dismissed. Economists just don’t really like putting things down to differences in preferences unless they’re really forced to.
Eric points out that
Where advocates of high tobacco taxation often allege hyperbolic discounting by smokers, with taxes then helping smokers to solve self-control issues, this study shows that observed smoking behaviour can be explained without recourse to hyperbolic discounting.
I agree that it might mean that the studies on hyperbolic discounting need to be recalibrated, but I wouldn’t go as far as Eric. There is good experimental evidence that hyperbolic discounting describes normal human behaviour. It is likely to affect people’s decision to smoke and we shouldn’t ignore that just because we now have another reason. Just as explaining smoking without recourse to heterogeneous preferences is missing half the story, so is trying to explain it without hyperbolic discounting. Of course, whether you think that internalities justify taxation is quite another argument.
I thought this study was a case of obvious observation. As Billy Connolly once noted, the Quit Smoking propaganda goes on about smoking knocking five years off your life. But it’s not five years, for example, in your 20s. No, it’s another five years after 74 or something.
Not everyone subscribes to the Vulcan dogma of living long and prospering.
@Will de Cleene
Or “Can’t we get you on Mastermind, Sybil? Next contestant, Mrs. Sybil Fawlty from Torquay. Specialist subject – the bleeding obvious.”
Is this hyperbolic discounting? “it’ll never happen to me” and “I’m in control and can give up any time I want”.
I guess I should have framed this better. We know that people smoke because they want to. That’s not a revelation. What economists want to know is how they can explain smoking and addiction using their models of behaviour. You can say “oh, it’s just that people are different” but different in what way?
One popular way to model it is to say that people discount hyperbolically. Essentially that means that their decision will change over time: they’ll want to quit in future, but when it comes time to quit they’ll put off quitting again. That’s used as a way to reconcile the fact that smokers constantly try to quit with the observation that they rarely do. Hyperbolic discounting also helps to explain a lot of phemonena that we observe and is supported by experimental evidence.
Of course, not everyone smokes. So usually we’d say that some people just like smoking more than others, but this study gives us more information. It tells us that people who smoke actually value the future costs of smoking less, too. Knowing more about how smokers make decisions helps inform any smoking policy that we may wish to advocate by giving our models of smoking richer detail.
I hope that kinda helps explain why this result is interesting 🙂
this is why I’m not an economist, when you said discount hyperbolically I thought you meant they disregard the risk in an exaggerated Italianate style – “it will NEVER happen to me!!!!”. I never thought of those hyperbolic curves we used to make on blocks of wood out of wool and nails.
@insider
It is true that economists (on this blog at least) tend to prefer the boringly precise to the theatrical.
It is exactly what you guess: it refers to the shape of the curve that the discount factor makes over time. However, most of the time, when people refer to hyperbolic discounting, they don’t actually use hyperbolic curves because it is too mathematically complex.
I tend to find ex-smokers about as hyperbolically challenged as born again Christians.
Whatever your prior estimate was of the desirability of smoking taxes or regulations as a solution to internalities, your estimate of said desirability ought go down as consequence of the study.
I’ve never put much stock in the idea that government ought regulate or tax to rectify internalities: folks have way too many ways of self-regulating for such things; evidence that they choose not to I take as evidence of a meta-preference not to change their behaviour rather than as evidence that they have conflicting homunculi.
Of course, I’ve scrapped a bit with Matt about this before :>
@Eric Crampton
I believe our arguments regarded externalities through the tax system – not “internalities”. I’m not much of a fan of taxes that are justified by hyperbolic discounting myself – I have a cognitive bias against them I guess 😛
Yes, fat taxes. I was in the middle of my scrap with the public health folks when I read your Infometrics piece in the Press and got rather annoyed.
@Eric Crampton
😀
The goal is to wind people up – so I’m glad to hear that.