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Alcohol Myopia and Risk Taking

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Author Info

  • Alejandro T. Moreno-Okuno

    ()
    (Department of Economics and Finance, Universidad de Guanajuato)

  • Emiko Masaki

    ()
    (Asian Development Bank)

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    Abstract

    The aim of this paper is to develop a model that explains how the consumption of some additive substances a¤ects an individual?s choice between risky alternatives. We do this by assuming that some additives substances, speci?cally alcohol, increase individual?s present bias. As individuals that consume alcohol show greater preference for the present and less for the future, they would ?nd risky choices with rewards in the present and costs in the future more attractive. Theferore, an individual that wouldn´t have accepted a lottery may do so after consuming alcohol and he regret his decision after the alcohol in his blood is eliminated. We analyze the e¤ect of two taxes in discouraging a risky activity: a tax on the consumption of alcohol and a tax (or penalty) if the future costs of the lottery are realized.

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    File URL: http://economia.ugto.org/WorkingPapers/EC201102.pdf
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    Bibliographic Info

    Paper provided by Universidad de Guanajuato, Department of Economics and Finance in its series Department of Economics and Finance Working Papers with number EC201102.

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    Length: 16 pages
    Date of creation: Oct 2011
    Date of revision:
    Handle: RePEc:gua:wpaper:ec201102

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    Related research

    Keywords: habit-formation; risk taking; alcohol consumption;

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    1. Christopher Carpenter & Carlos Dobkin, 2010. "Alcohol Regulation and Crime," NBER Working Papers 15828, National Bureau of Economic Research, Inc.
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