An economist’s guide to drinking responsibly
Fri 14 Oct 2011 by Matt Nolan.

If there is anything this World Cup has shown me it’s that I enjoy the occasional drink.   While this is all well and good, I often find that my plans to only have one or two drinks while watching the game fall apart – and that I end up severely regretting the excessive drinking the next day.   Luckily, economists have studied this issue in detail.  Let me share with you why economists believe this issue exists, and how we can use this knowledge to improve our drinking experiences.

One of the first ways economists would explain my predilection for drinking a bit too much was by saying that it isn’t actually excessive.   The name for this view is "rational addiction".   So even though my drinking may seem excessive to others, there are underlying reasons why I choose to do it.   It may be that each drink I have increases the value associated with another drink, it may be that the social situations I choose to be in promote additional drinking.   In this context, I am drinking to excess because I want to – and my complaining the next day is just because I’m currently facing the costs of my own choice.

While this rings true, I don’t feel it captures the whole story.   Oft times I will say to myself the day before drinking "I only want a couple of quiet beers".   However, once I am out I’ll suddenly feel that drinking a whole lot is very appealing, even with full knowledge of how I will feel the next day.

So at two points in time, I will think very differently about how to weigh up the costs and benefits of drinking.   When the drinking is far in the future, I value the idea of no hangover above the benefits the come from drinking –  but when it comes time to start drinking with my friends, I suddenly value drinking above the cost of having a hangover tomorrow.  Economists call this change a "present bias".

Stepping back from drinking, let’s come up with a more general example of this phenomenon.   Say that you were offered $100 today or $101 dollars in a week’s time, what would you pick?   You would be unsurprised to discover that most people pick the $100 today.

However, what happens if you were offered$100 in a year or $101 dollars in a year and a week’s time?   In this case, most people would pick the $101 dollars.

In both of these cases you are sacrificing access to the money by a week in order to receive $1.   But the fact that one of the situation involves "now" changes your choice.

As this example shows, the phenomenon of present bias has an impact on many attributes of our lives.   A bias towards the here and now leads us to save too little, drink too much, eat the wrong sort of food, and invest in the wrong things.   The fact that we, as humans, experience such a hedonistic trait in our decision making implies too many people that we need benevolent government actions to help us out.   Restrictions on drinking, Kiwisaver, and making a multitude of drugs illegal are all policy aimed at this attribute of humanity.

But the fact that this can lead us to make “wrong choices" does not mean that someone else needs to tell us what choicest make.

Let’s get back to my drinking.   If it turns out I would be better off not drinking at all on Friday nights there is an easy solution, I could only bring bus and lunch money in with me on Friday.   Without the ability to buy alcohol I am unable to drink to excess, and so can commit toot drinking.

In the case of saving, many people will setup an automatic payment to a savings account that is difficult to access.   Bodying this they are forced to save for the future even if, at a moment in time, they want to blow the lot on an electric unicycle.

A bias towards the present is a fact of life we just have to live with.   By recognising these biases, we can tailor the choices that are available to us in the future in order to deal with this bias.

So what tips do I have when it comes to drinking?   I have already mentioned only taking out a small amount of cash.  You can also dress down and not take your ID (depending on your age and the types of bars you go to), or you could take up a Saturday morning activity.   Feel free to thank me in advance for your much reduced hangover.

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