Apr 27, 2008

To Smoke or not to Smoke – A Comment in Two Acts

- Act One -

It can be surprising sometimes which kind of topics the Economic discipline has incorporated into its realm. One of these fields is the “Economics of Smoking” which exists now also as the “New Economics of Smoking”. On one hand the potential costs of smokers for the health system of a country gives enough reason for economists to care about smokers. On the other hand it is surprising to see that it requires a whole new “Economics of…” for a field that seems rather trivial at least from the point of view of the individual smoker.

An influential researcher on this topic is Jonathan Gruber, who writes on the NBER website

“...The fundamental problem with the rational addiction model is that it does not account for the "self-control" problems faced by smokers. There is ample evidence that adults are unable to quit smoking even if they have a desire to do so….”

Well having smoked for easily 10 years this does not come as too much of a surprise to me nor will it to any other person: smoker or non-smoker. Gruber goes on to say:

“…These facts motivated Koszegi and me to develop an alternative formulation of the smoking decision which changes the traditional formulation in just one critical way: by allowing smokers to be time inconsistent. This approach, now widely used within the new field of "behavioral economics," is one where there is conflict between what the smoker would like for himself today and what he would like for himself tomorrow. Today's "self" is impatient. Faced with the tradeoff between the short- term pleasures of smoking and the long- term health damages of doing so, he will greatly discount the latter and decide to smoke. But tomorrow's "self" is much more patient. That more patient self would prefer to quit smoking. The problem, however, is that tomorrow never comes. The next day, the future self who was patient is now the current self who is impatient. So the smoking continues, to the long-term regret of the smoker. This is in contrast with the time consistent formulation that is assumed by the traditional economics model. In that formulation, today's self and all future selves are in agreement about the advisability of smoking, leading to no regret or inability to carry out plans to quit.

Now this is amazing! If you ever thought about smart ways of “marketing” your research, this part of the outline of Gruber’s research agenda is a perfect example of how to do this. Why? Because it sounds incredibly great and smart , but at least all smokers (economist or not) could have told you the same, however in very different words, since probably most smokers keep telling themselves: “One day I will stop!” Unfortunately, that day never comes since we keep telling us that sentence every other day. And: We are fully aware of this!

Gruber continues by writing:

“…The key implication of time inconsistent preferences is that one's future self would like to somehow constrain one's current self to behave more patiently [..]. Thus, time inconsistent consumers will have demand for commitment devices that can be used to induce more appropriate behavior in the present. Indeed, the search for such commitment devices is the hallmark of most recommended strategies for quitting smoking: people regularly set up socially managed incentives to refrain from smoking by betting with others, telling others about the decision, and otherwise making it embarrassing to smoke…”

Having stopped to smoke just recently, I was aware of the commitment problem. Also all the other smokers and non-smokers at our lunch table in the Economics department saw immediately the reason for my public “outing” of having become a non-smoker. So either the people sharing lunch with me in the Graduate Institute are really smart or the fact that we are all economists implies that we have understood the problems of incentives and commitments or less charming to our “self” it is a rather obvious thing to do. Irrespective of this, the bad news for me and my future as non-smoker according to Gruber is that:

“..Unfortunately, […] there is no way to truly commit oneself to not smoke..”

However, my efforts are not doomed yet since:

“…the government, on the other hand, can provide an excellent commitment device: cigarette taxation [..]. By raising the price of cigarettes, the government and courts can make smoking more costly for today's self, helping achieve what the smoker's own long-term self would desire by lowering smoking today. ..”

Unfortunately for me, this is the point where I disagree. Yes, it is true that higher prices discourage smoking (in particular for young smokers who just start and this is why I am for cigarette prices as high as possible). BUT, there is a limit to it. I remember very well the times that Berlin’s streets where full of cigarette vendors who sold well below the prices in the stores. So, price increases have a natural limit and this will be well below the price that the addicted smoker is willing to pay (during the time that I smoked cigarette prices nearly doubled).

So if you read up to this point you probably know what my stance is on the successful approach to fight smoking, at least from the point of view of the individual smoker…to be continued with some statistics on the issue…

A hopefully lasting non-smoker

6 comments:

Dany said...

I really like this existentialistic approach of different ourselves in intertemporal problems. In the same way that hyperbolic discount rates introduce some physiological reactions in the way the appreciation of the future is modeled, could be likely to introduce philosophical or psychological theories into it…

Pierre-Louis said...

More effectively, the government cab ban smoking in bars and restaurants, makes it look at disgusting, and people will stop gradually...i mean the ban affects the social norms through what is seen as OK, not just becuz it becomes physically more difficult...

cosi said...

The gov't can probably put a high level of social stigma onto smokers (e.g., in some airports, smokers can satisfy their addiction in circular rooms fully visible through glasses by other passengers. It must be quite embarassing for smokers to enter the ghetto). The gov't could also probably increase the costs of smoking by having smokers pay for smoking-related deseases (smoker-pays principle - I am not sure about the feasibility, though). Concerning "self-inflicted" incentives, unfortunately there is no 100% credible device. Even if I could have a third agent committed to impose great harm if he/she/it saw me smoking (e.g., I can have my thesis advisor credibly commit to dump me if he sees me smoking), monitoring is too big a problem (I can smoke in the toilet). All in all, it takes something more than an incentive-based approach, to me. And I agree w/ Sebastian, the "new" theory looks like a collection of obvious ideas put in nice, economist jargon.

Pierre-Louis said...

economics is always more than obvious stuff put into jargon...

T-Viddy said...

I think the idea of persistent time-inconsistency is interesting. The marketing of this paper is briliant, because the flow from the concept to the math and rationalization of the persistent time-inconsistency is briliant. I only see one problem with changing assumptions which are accepted by everyone. People keep relaxing assumptions to make our theory fit reality better. But if we arrive at the point that many assumptions are relaxed, will the theory still haev any interesting testable predictions ?

As for raising prices on cigarettes, for this too work all countries in a given region have to participate. Otherwise all that you are doing is making smuggling extremely worthwhile.

cosi said...

If you charge too high a price on cigarettes, you may cause substitution to cheaper tobacco products (e.g., own-rolled tobacco) which are also pretty bad for one's health. It is pretty much the same story as crack, the poors' substitute for cocaine. Some people could simply alter their consumption basket so as to consume less "goods" (e.g., cinema tickes) to be able to afford as many cigarettes as their addiction dictates. I do not know the evidence, but I guess that for a lot of people the addiction motive is a better behavioral explanation that the time-inconsistent model (I wish to quit, but I'll quit tomorrow).