Alcohol Myopia and Risk Taking

Alejandro T. Moreno-Okuno () and Emiko Masaki ()
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Alejandro T. Moreno-Okuno: Department of Economics and Finance, Universidad de Guanajuato
Emiko Masaki: Asian Development Bank

No EC201102, Department of Economics and Finance Working Papers from Universidad de Guanajuato, Department of Economics and Finance

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.

Keywords: habit-formation; risk taking; alcohol consumption (search for similar items in EconPapers)
JEL-codes: D11 D60 D81 D91 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2011-10
New Economics Papers: this item is included in nep-cbe and nep-hea
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