Published in the Laissez Faire Electronic Times, April 8, 2002
The basic difference between anti-smoking advocates and the defenders of free choice — or, at least, those who use the economic approach — relates to how the decision to smoke is conceived. For anti-smoking advocates, the individual smoker does not really decide to smoke: the decision is made for him, outside of him, and against his interests.
The economic approach is very different. It starts with individual preferences guiding behavior, and assumes that individuals are rational, i.e., they act with the goal of satisfying their preferences in some sense (the exact sense depending on the school of economic thought). Individual preferences cannot be observed, since they are in each individual's mind. They only can be deducted from actual choices. If an individual freely consumes X units of good A, he thereby reveals that this is what he prefers given prices and his budget. Many smokers claim that they would like to quit, but that they are unable to. Analogously, notes economist Kip Viscusi, half the residents of Los Angeles claim that they would like to move out, but never do. Words are only words, and an actual choice to smoke reveals that, all costs and advantages being considered, this is what the smoker prefers to do. In short, smokers smoke because they enjoy it.
But how can consumption of addictive goods be considered rational? This puzzle was solved in the 1980s by Nobel prize-winning economist Gary Becker, who developed the theory of "rational addiction," demonstrating that an individual may rationally decide to become addicted. Becker and Murphy [1] defined an addictive good as a good that brings "utility" (or satisfaction) as a function of previous consumption. The more you have consumed it, the more you like it. The economic notion of addiction is factual, and carries no moral overtones. A good can be addictive for certain individuals but not for others — for example: alcohol, drugs, work, eating, music, television, jogging, gambling, standard of living, religion, and tobacco.
Plenty of Room for Choice
Is tobacco addictive form a biological viewpoint? In a recent book, two psychologists, Drs. Hanan Frenk and Reuven Dar, conclude their analysis: "We submit that an objective evaluation of these data leads to the conclusion that nicotine is not an addictive drug … Put simply, we claim that on present evidence, there is every reason to reject the generally accepted theory that nicotine causes smoking, or that the difficulty in quitting is caused by nicotine."[2] But even if tobacco is addictive in the biological sense, free choice is certainly not precluded since one half of nonsmokers are former smokers. Therefore, there is room for preferences and choice.
Based on the economic definition, Becker, Grossman, and Murphy [3] found that cigarettes are addictive: between 50% and 60% of a given year's consumption is carried over to next year's consumption (other things being statistically equal). They also found that tobacco addicts are rational, in the sense that they respond to changes in expected prices, since they know that future prices will make their addiction more expensive over time. An individual becomes addicted to something because, given his own preferences and circumstances, he judges the total benefits higher than the total costs over time.
We know that smokers' preferences are different from nonsmokers' from the simple fact that the former choose to smoke, while the latter reach the opposite decision. There is also independent evidence that smokers and nonsmokers have (statistically) different personalities, and often face different circumstances. It has been observed that smokers take more risks in their lives (for instance, they use seat belts less) and in their jobs. Table 1 shows recent data from the National Longitudinal Surveys of Youth, where we observe that smokers are less stable, less educated, and earn less than nonsmokers. Economists Munasinghe and Sicherman show that smokers earn less and, more importantly, that their earnings increase much more slowly than nonsmokers even if we control for health, sex, race, social background, schooling, and IQ.[4] .
One difference that distinguishes smokers from nonsmokers relates to what is called their time preferences rates, i.e., the rates at which they discount the future. Someone who discounts the future more (who has a higher time preference rate) will tend to take more risks of future costs in order to enjoy benefits now. If, as smokers like nonsmokers believe, smoking carries future costs in terms of health problems, we would expect people who decide to smoke, or continue smoking, to have higher time preference rates; conversely, we would expect people who choose not to smoke to have lower time preference rates.
Now, if smokers have higher rates of time preference, we would also expect them to choose occupations where they get more income or gratifications now, at the expense of higher income growth potential. This explains the findings of Munasinghe and Sicherman, to the effect that smokers' lower earnings are due mainly to lower earnings growth, as opposed to lower starting wages (which are explained by other factors like education). In other words, smokers smoke for the same reasons that they take more risks in life and prefer occupations that provide more satisfaction now rather than later, i.e., because they have a higher rate of time preference.
This theory also explains why smoking is more prevalent among the more artistic types, who are known to enjoy more the present at the expense of the future. Table 2 shows results of a survey among undergraduate majors in two U.S. colleges. The proportion of smokers among dance (66%) and English students (48%) is much higher than among engineering (20%) or psychology (17%) students. Munasinghe and Sicherman conclude that "dancers smoke because they are more present-oriented."
Why do some individuals smoke? The short answer is, because they like it. The long answer is that it is rational for them to do so, given their preferences, including their rates of time preference, and given their own circumstances in life. A normative conclusion follows: adults should be let as free to smoke as to take other risks in their lives. The only way to argue against this conclusion is to adopt a paternalist approach: somebody else than these in- dividuals knows better what their real interests are, and is justified to intervene coercively in their choices.
[1] Gary S. Becker, and Kevin M. Murphy, "A Theory of Rational Addiction," Journal of Political Economy, Vol. 96 (August 1988), pp. 675-700.
[2] Hanan Frenk and Reuven Dar, A Critique of Nicotine Addiction (Boston: Kluwer Academic Publishers, 2000), pp. 2 and 5.
[3] Gary S. Becker, Michael Grossman, and Kevin M. Murphy, "An Empirical Analysis of Cigarette Addiction," American Economic Review, Vol. 84, No. 3 (June 1994), pp. 396-418.
[4] Lalith Munasinghe and Nachum Sicherman, "Why Do Dancers Smoke," April 2001, available at papers.nber.org/papers/W7542.