Gruber and Koszegi find that smokers respond not only to the current price, but also to next period’s price in their smoking decisions. They show, however, that this tests only the non-myopia condition that is present in both the rational addiction and their alternative model; this test has no implications for the time consistency aspect which strongly differentiates the models.

There is a large body of evidence to support the notion that agents are time inconsistent, in particular with regards to their smoking decisions. Laboratory experiments document overwhelmingly that consumers are time inconsistent (Ainslee, 1992). In experimental settings, consumers consistently reveal a lower discount rate when making decisions over time intervals further away than for ones closer to the present, raising the specter of inter-personal conflict over decisions that have implications for the future.

In the context of smoking, there is indirect evidence for time inconsistency that is reviewed in Gruber and Koszegi. A hallmark of sophisticated time inconsistency is the use of self-control devices. And there is substantial evidence that self-control devices are frequently employed to quit 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 (Prochaska et al., 1982).

Various punishment and self-control strategies are recommended by both academic publications (Grabowski and Hall, 1985) and selfhelp books (CDC, various years). Such self-control devices are not needed by a time consistent agent; while such an agent would obviously like to make quitting as costless as possible, lowering the utility of an undesired alternative is irrelevant for decisionmaking. so

An alternative formulation of time inconsistency is the naive case, where individuals do not recognize their own self-control problems (O’Donoghue and Rabin, 1999). One feature that distinguishes naive time-consistent agents from time-inconsistent agents is an inability to realize desired future levels of smoking. In fact, unrealized intentions to quit at some future date are a common feature of stated smoker preferences.

Eight of ten smokers in America express a desire to quit their habit (Burns, 1992). Among high school seniors who smoke, 56 percent say that they won’t be smoking five years later, but only 31 percent of them have in fact quit five years hence. Moreover, among those who smoke more than one pack/day, the smoking rate five years later among those who stated that they would not be smoking (74 percent) is actually higher than the smoking rate among those who stated that they would be smoking (72 percent) (U.S. Department of Health and Human Services, 1994).

Category: CIGARETTE TAXES / Tags: behavior, smoke, social welfare