this essay was written in order to fulfill the compulsory final semester task for the course of Microeconomics 2 under the same title.
11 Minutes
In 11 minutes you can call a friend, wash your dishes, take a shower, or perhaps watch a half of Friends episode. In 11 minutes, I can finish writing approximately a page of this essay. Throughout your life, 11 minutes might be insignificant, but is it worth losing? Shaw, et al. (2000) found that smoking a cigarette can reduce your life by 11 minutes. The research’s calculation basically just took the difference between smokers and non-smokers’ life expectancy and divided it with the average consumption of cigarettes per year, assuming each cigarette had the same contribution. Although it was a very raw research, we cannot refuse nor resist the negative impact of smoking.
The Statistics
Worldwide, smoking causes more than 7 million deaths per year (WHO, 2017). If the pattern of smoking globally stays the same, more than 8 million people a year will die from diseases related to tobacco use by 2030 (WHO, 2011). Cigarette smoking is responsible for more than 480,000 deaths per year in the United States alone, including more than 41,000 deaths resulting from secondhand smoke exposure. This is about one in five deaths annually, or 1,300 deaths every day (U.S. Department of Health and Human Services, 2014). On a more personal matter, according to the U.S. Centers for Disease Control and Prevention, smoking can lead to lung cancer, coronary heart disease, throat cancer, high blood pressure, infertility, and many more.
I guess we are all familiar with the risk, after all, it is written “Smoking Kills” in the packaging. Effort for smoking cessation has begun since early ages for many people. Countries have put sufficiently high tax on tobacco products. Until November last year, Indonesian government accounted for 146 billion rupiah from tobacco taxes alone (Idris, 2020). Although spending billions of dollars every year, even no cigarettes commercial really shows people smoking but instead they put a caution in the ads.
Despite all this, each day, around 2000 teenagers under 18 years old start smoking their first cigarette and another 300 become a daily smoker in the U.S. alone (Substance Abuse and Mental Health Services Administration, 2017). So really, why do people smoke? Are the immediate benefits offered by consumption so significant that all perceived costs, including possible future adverse effects, are outweighed? If this is the case, is it valid for any intake, or just for the initial decision, which, as a result of addiction, leads to excessive consumption levels?
Consumer Behavior and Rationality Assumption
Let’s take a look at this from the economic perspective. By believing that individuals behave in their own best interest, economists model human behavior. Economics defineagents as maximizing utility when, given their values, they make rational choices consistent with their preferences. According to the theory of consumer behavior, smoking is never really a problem when completed with economic rationality assumptions and preference axioms. Pindyck and Rubinfeld (2014) described consumer behavior as the explanation of how consumers allocate incomes to the purchase of different goods and services. The concept is best understood by understanding three other concepts: consumer preferences, budget constraint, and consumer choices.
In understanding consumer preferences, we have to determine the reasons why an individual may choose one market basket over another. Three basic assumptions need to be met. First, completeness: consumers can compare or rank one market basket over another. It is assumed that individuals are not paralyzed by indecision. They understand fully and can still make up their minds about the desirability of any two choices. Second, transitivity: their choices are said to be transitive or consistent. Third, more is better than less: cigarettes are counted as goods and thus desirable. The more cigarettes there are, the better and thus preferred. Next consumer behavior assumes consumers are imposed with limited budget and number of goods they can buy. And this brings us to the last one, given their preference and limited income, rational consumers will choose a basket that gives them the highest satisfaction.
In a glance, smoking might look like it cannot possibly be the one that gives consumers the highest satisfaction. Seemingly, those who smoke are not a rational consumer. This complexity comes up with a puzzle to economic theory. I will be answering the question “Why do people smoke?” with the rational addiction theory explained by Becker and Murphy in 1988.
A theory of Rational Addiction
“A Theory of Rational Addiction”, published 1988 in the Journal of Political Economy, was considered one of the ground-breaking articles in which Gary S. Becker and Kevin M. Murphy propose that addictive behavior could be integrated in the rational choice framework. Earlier publications usually only integrate models to explain addictions with irrational or myopic behavior in which individuals ignore or highly discount the future when making their decisions. Discount rate is vital for the calculation because although smoking imposes several immediate impacts, the most serious consequences came later on in life. But this theory takes into account the discount rate and assumes that consumers are forward-looking in their decision making by trying to anticipate and calculate present and future consequences of consuming an addictive good. The calculation found that people with a high discount rate tend to smoke because they place minimal value on the future consequences of smoking.
Addiction is nothing more than a gradual implementation of a time consistent behavior, which is also a forward-looking and welfare-maximizing intertemporal consumption plan. A good is considered to be addictive if its consumption during a particular period of time depends strongly on past consumption patterns. Cigarette addiction is both physical, because of the impact of nicotine addiction in the brain, and psychological as associated with gesture, ritual, habits. Becker and Murphy wrote that three things are used to characterize addiction: tolerance, withdrawal, and reinforcement. Tolerance means that when an individual becomes tolerant for a substance, the higher the cumulative past consumption, the smaller the utility derived from the current consumption. In other words, tolerance means the body becomes used to it. Withdrawal is the body’s reaction to a lack of nicotine after the cessation or reduction of consumption. According to Centers for Disease Control and Prevention, the associated symptoms include nausea, high blood pressure, abnormal heart rate, irritability, nervousness, and anxiety . Thus when they consume less of the addictive substance, their utility falls. Lastly, reinforcement is related to the concept of adjacent complementary. It means that the higher consumption levels have been in the past the higher consumption is in the present. In other words, past and present consumption are complementary to each other.
Now, be the Smoker
Let’s immerse ourselves in this theory and put our perspective as the addict smoker. In accordance with the previous statement, an addict smoker is considered rational. After their first consumption of cigarettes, they will start consuming more. Over time, their body gradually adapts to cigarettes and thus their body will start craving for it. Deciding to quit means that they will have this heavy uneasy feeling and numerous other side effects of withdrawal previously stated. Knowing this, should they just quit smoking? Rationally, no. This makes each future cigarette more valuable. Those future consumption will remove the “pain” from withdrawal and give them what they crave. Rational addicts are aware of this effects and have made a plan which will give them the maximum satisfaction, pleasure, or
welfare over their lifetime. The theory of rational addiction shows how addicts pursue carefully calculated plans for cigarettes consumption. So smoking and being addicted to it is rational, because if not, they will not be doing it.
Other than rationality, consumers also assumed to have perfect foresight. They are able to make a long term life plan and take into account all of the future cost and side effects into their decision. This is one of the biggest critics for the theory. This theory is also unable to explain some phenomena in smoking behavior. For example many addicts are trying so hard and paid a lot of money to get rid of their addiction, because they are aware of the future consequences and want to stop. Moreover, this theory assumes that individuals live infinitely such that harmful addiction, by assumption, cannot affect life span. The negative effects of addiction on health can be represented indirectly as negative effects on utility but the impact of smoking on premature death through deteriorating health cannot be taken into account.
Conclusions
In the theory of rational addiction, consumers are assumed rational. They satisfied economic rationality assumptions and preference axioms in the decision making process. Given limited income and products, they will choose one that maximizes their satisfaction. When consuming an addictive good, their past, present, and future are adjacent to each other. That is, they are all complementary. Their consumption in different times is complementary to the other so the higher consumption in the past, the higher the consumption in the future.
Consumer’s rationality explains why continuous consumption is the most-maximizing choice once they become an addict. It is more preferable than experiencing the side-effects of withdrawal and gives them utility at the same time, thus it generates the most satisfaction. In conclusion, when faced with the choice to continue smoking or quit smoking, rational addicts will choose to continue smoking.
For further research, it is interesting to know how the model would react when individuals can take into account a limited life span and the deteriorating effects smoking has on them. Other than that, it is also interesting to empirically analyze the effect of current time preferences on current smoking behavior by controlling for the effect of past smoking behavior using up-to-date data sets.
References
Becker, G., & Murphy, K. (1988). A Theory of Rational Addiction. Journal of Political Economy, 96(4), 675–700. Retrieved January 10, 2021, from http://www.jstor.org/stable/1830469
Centers for Disease Control and Prevention. Tips Impact and Result. Atlanta: U.S. Department of Health and Human Services, Centers for Disease Control and Prevention, National Center for Chronic Disease Prevention and Health Promotion, Office on Smoking and Health. (accessed 8 January 2021).
Idris, Muhammad. (2020). Meski Ada Corona, Penerimaan Negara dari Cukai Rokok Justru Naik. Jakarta: Kompas.com. (accessed 8 January 2021). https://money.kompas.com/read/2020/12/22/072603126/meski-ada-corona-penerimaan-negar a-dari-cukai-rokok-justru-naik?page=all#:~:text=JAKARTA%2C%20KOMPAS.com%20%2 D%20Kementerian,mencapai%20Rp%20133%2C08%20triliun.
Pindyck, Robert S., and Daniel L Rubinfeld. (2014). “Producers, Consumers, and Competitive Markets.” Microeconomics, 8th ed., Pearson Education Limited., pp. 91–94.
Shaw, Mary., Mitchell, Richard., & Dorling, Donny. (2000). Time for a smoke? One cigarette reduces your life by 11 minutes. British Medical Journal (BMJ) 320(7226): 53.
US Centers for Disease Control and Prevention. VitalSigns website. http://www.cdc.gov/vitalsigns/TobaccoUse/Smoking/index.html. (accessed 8 January 2021).
U.S. Department of Health and Human Services. (2014). The Health Consequences of Smoking — 50 Years of Progress: A Report of the Surgeon General. Atlanta: U.S. Department of Health and Human Services, Centers for Disease Control and Prevention, National Center for Chronic Disease Prevention and Health Promotion, Office on Smoking and Health. (accessed 8 January 2021).
World Health Organization. (2011). WHO Report on the Global Tobacco Epidemic, 2011. Geneva: World Health Organization. (accessed 8 January 2021).
World Health Organization. (2017) WHO Report on the Global Tobacco Epidemic. Geneva: World Health Organization. (accessed 8 January 2021).
Substance Abuse and Mental Health Services Administration. (2017). National Survey on Drug Use and Health Detailed Table. (accessed 8 January 2021).
