Economics of Smoking

Other Empirical Evidence To Explain Continued Smoking

Overview

A fundamental reason why some people smoke and others do not may simply be that their preferences differ. Also, persons who believe that they have a lower life expectancy may be more prone to smoke. Persons smoke because they underestimate the probability of adverse consequences of smoking. Now each of these hypotheses will be examined.

Heterogeneity In Preferences

There is empirical evidence that preferences differ between smokers and others. For example, it seems that willingness to pay to be in good health is considerably higher for never smokers than for current smokers, implying that one reason people continue to smoke is that they value being in good health less.

Smokers select riskier jobs but receive lower risk-adjusted compensation than nonsmokers. This seemingly anomalous result can be predicted from a model in which employers’ offers and workers’ utility depend on wages and the probability of injury on the job. Smokers and nonsmokers appear to be segmented labor groups having distinctive preferences and distinctive labor market curves. Smokers are more risk tolerant and more impatient. Moreover, heavy smokers tend to be more impatient and less risk averse than never smokers whereas former smokers are more patient and risk averse than never smokers.

Biased Risk Perceptions

Youth risk perceptions are particularly relevant for the initiation of smoking as almost all initiation occurs before age 22, whereas adult risk perceptions are important for what they tell us about cessation. A common assumption appears to be that youths start to smoke because they are overoptimistic about life outcomes.

The empirical evidence reveals a more complex picture. Youths are extremely pessimistic about the probabilities of lung cancer due to smoking or, indeed, dying for any reason by age 20 (Sloan and Platt, 2011).

Overall, for adults, comparing subjective with objective risk, subjective beliefs are quite close on average to their objective counterparts. However, there are differences by smoking status. Even though subjective beliefs about the probability of dying tend to be higher for current smokers than for never smokers, current smokers tend to be relatively optimistic and never smokers relatively pessimistic in assessments of their own mortality. However, risk perceptions seem not to be important in the decision of adults aged 50–70 to continue smoking. The evidence on relative optimism and pessimism is consistent with a more general finding that low-risk groups tend to overestimate and high-risk groups tend to underestimate their mortality risks. Overestimation of risk reduces the probability that a person will be a current smoker, a result found in several studies from various countries.

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