IRISH CASE STUDY:
Chapter 15: Coping with Risk in Economic Life & Chapter 16: Introduction to Welfare Economics

The Rationality of the Decision to Smoke
by Bernadette Power, Department of Economics, University College Cork.

This case addresses some of the issues discussed in chapter 15 such as an individual's attitude to risk and how uncertainty about the outcome of an individual's actions may influence their actions. It introduces the concept of risk and the belief in economics that individuals are expected to act to reduce their exposure to increased levels of risk such as purchasing insurance policies against risk. This assumes that individuals are risk adverse and act rationally. This case also broaches the issues of health, time and risk and market efficiency presented in chapter 16. These issues can be explored further in a fruitful discussion of the points raised in this case.

Individuals face a multitude of risks in their daily lives because of particular actions taken and consumption decisions made such as to smoke or to do a parachute jump. Economic theory assumes that individuals respond rationally to risk i.e. they wear a safety belt in a car, a helmet on a motorbike, purchase household insurance against fire and theft etc. Thus, if there is an increase in the perceived level of risk an individual will try to reduce their exposure to this risk. Therefore, less risky goods will be consumed at higher levels of risk. So the quantity of cigarettes consumed is expected to be negatively related to the risk of premature death due to smoking. This is also demonstrated in the labour market, as individuals must be compensated to work in a risky environment; thus risk has a positive effect on some wage rates.

One of the major factors influencing health-related behaviour is the perception of risk. The decision to smoke has a risk of premature death associated with it. The risk of premature death due to smoking is much higher than other non-medical risks but it is by no means certain. Peto (1994) provided epidemiological evidence that quantified the current risks of premature death due to smoking in the United Kingdom. On average, among one thousand 20 year olds who smoke cigarettes regularly, approximately one will die from homicide, six will die from motor vehicle accidents and 250 will be killed by smoking in middle age alone (35-69 years). Another 250 will die in old age if they continue smoking at the age of 70 and over. Demonstrating information in this way about the quantitative risks of smoking shows how perilous smoking is compared to other non-medical risks.

A random selection of the general population in Ireland (smokers, ex-smokers and never smokers) were surveyed on their perceptions of the health risks associated with smoking based on statements used by Peto (1980, 1994). The precise wording of the risk questions asked of the two samples were:

"On average, out of one thousand 20 year olds in Ireland who smoke regularly and who carry on smoking how many do you think will be murdered? How many do you think will be killed on the roads and how many will be killed by smoking before the age of 70?"

These questions refer to a general measure of risk perception rather than a measure of own personal risk.

The general population of Ireland was found to have a reasonably accurate perception of the risks associated with smoking. Estimated median numbers of deaths from smoking were close to Peto's epidemiological estimates. Thus, the risk estimates of smokers, ex-smokers and non-smokers were broadly similar. The risks of premature death from smoking were also ranked more highly than other the other risks such as murder and being killed on the roads.

If smokers in Ireland have reasonably accurate estimates of the risks of smoking and similar risk estimates to that of never smokers and ex-smokers a fundamental question is whether the smoking decision is rational. If smokers understand the risk of premature death it must be questioned whether they take this into account when making their smoking decision i.e. do activities which increase a smoker's awareness of the risks of smoking influence their behaviour? Will smokers take actions to reduce their exposure to perceived higher levels risk by quitting smoking or reducing the numbers of cigarettes they smoke daily? If risk perceptions did not affect smoking in a significant manner doubt would be cast over the rationality of this consumption decision.

This debate is important from a policy perspective and for those involved in health promotion because if individuals who underestimate the risk or overestimate the risk of being killed by smoking had a more accurate risk perception and acted on it this would bring about greater efficiency in the market. Policy makers could in this instance try to influence an individual's perception of the risk of smoking using hazard warnings to foster more accurate risk perceptions. This question is quite pertinent since the prevalence of smoking in Ireland is rising. The prevalence of smoking fell from 47% and 37% for males and females respectively in 1973 to 29% and 28% in 1994. However, Valerie Coughlan of ASH (Action on Smoking and Health) reported in 1997 that 31% of females and 32% of males' smoke in Ireland. The current Minster for Health Michael Martin is instigating more stringent measures to discourage smoking to counteract this trend.

Figures 1 and 2 present evidence of the relationship between the quantity of cigarettes smoked and the level of risk perception of premature death from smoking. Figure 1 is a scattergram showing the number of cigarettes smoked per week for a given level of risk perception for each smoker in the sample. As the level of risk increases smokers continue to smoke more than 100 cigarettes per week. Thus, the relationship between the quantity of cigarettes consumed and the perception of the risk of premature death due to smoking is weak. Figure 2 presents the cumulated quantity of cigarettes smoked by smokers for the sample surveyed at given levels of risk perception. This figure illustrates a negative relationship between cumulated cigarettes smoked per week and the risk perception of smoking. At higher levels of risk all smokers consume less cigarettes. Thus, there is an indication that on average the decision to smoke is rational.


Figure 1: No. of Cigarettes Consumed Per Week at Different Levels of Risk Perception

 


Figure 2: Cumulate Cigarette Consumption Per Week at Given Levels of Risk Perception


References

David Labanyi, Smoking Facts, The Sunday Tribune, 18 July 1999. Peto, R., Possible Ways of Explaining to Ordinary People the Quantitative Dangers of Smoking, Health Education Journal 1980, Vol. 39:45-6

QUESTIONS FOR DISCUSSION

1. If the decision to smoke were a rational consumption decision how would you expect a smoker to react to information that the risk of premature death due to smoking is higher than he or she believed in the past?

2. Do you think that an individual's decision to smoke is rational based on figure 1? Does your opinion change from examining figure 2? Explain your answers.

3. Are smokers sensitive to changes in the perceived level of risk perception, i.e. will they change their behaviour dramatically in response to increases in the level of risk perception? (Hint: Examine Figure 2) How does this affect the ability of policy makers and those involved in health promotion to influence smokers' behaviour?

4. Since smokers in Ireland have accurate perceptions of the risks of how might other factors like age and levels of education explain their decision to continue smoking?