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Alcohol Myopia and Risk Taking

Author

Listed:
  • Alejandro T. Moreno-Okuno

    (Department of Economics and Finance, Universidad de Guanajuato)

  • Emiko Masaki

    (Asian Development Bank)

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.

Suggested Citation

  • Alejandro T. Moreno-Okuno & Emiko Masaki, 2011. "Alcohol Myopia and Risk Taking," Department of Economics and Finance Working Papers EC201102, Universidad de Guanajuato, Department of Economics and Finance.
    • Handle: RePEc:gua:wpaper:ec201102
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    References listed on IDEAS

    as
    1. Matthew Rabin & Ted O'Donoghue, 1999. "Doing It Now or Later," American Economic Review, American Economic Association, vol. 89(1), pages 103-124, March.
    2. 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.
    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.
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    Keywords

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    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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