To Smoke or Not to Smoke: Evidence on the ineffectiveness of warning labels

Gone are the days of doctors—and sometimes even Santa—endorsing tobacco products. Even President Obama is proud that he was able to kick the dirty habit. However, quitting is not an easy feat, even when smokers are aware of the dangers of tobacco and the benefits of quitting. In a recent article, “When Health Policy and Empirical Evidence Collide: The Case of Cigarette Package Warning Labels and Economic Consumer Surplus,” Anna V. Song, Paul Brown, and Stanton A. Glantz explore the possibility that smokers are not rational actors, making the graphic label regulations on cigarette packages ineffective.

In 2009, the United States Food and Drug Administration (FDA) began requiring cigarette companies to place large, often graphic warnings on all cigarette packages. Before creating this regulation, the FDA did a cost-benefit analysis in which it estimated the benefits of graphic warning labels and then cut these in half to account for the cost of lost “pleasure” smokers incurred as a result of these people quitting. The FDA quantified this lost pleasure using the economic concept of consumer surplus, which is the difference between the maximum price a consumer would be willing to pay and the actual price. Smokers are willing to pay more for cigarettes than the monetary cost, thus indicating that smokers obtain a surplus of benefit from smoking beyond the cost of cigarettes.

Consumer surplus based on willingness to pay is a well-established concept in classical economics and is grounded in rational choice theory. Rational choice theory represents human decision-making at its most logical, when decisions are the result of careful cost-benefit analysis. The authors provide an example of rational choice to explain an individual’s purchasing behavior when buying earthquake insurance for one’s home; the costs are calculable and the benefits are known.

When applied to smoking, this theory posits that smokers smoke because they compute that the current and future benefits outweigh the present value of future financial, social, and medical costs of smoking. However, a large body of empirical evidence from cognitive behavioral sciences demonstrates that smokers smoke because they are addicted and overestimate their ability to quit in the future. Thus, the decision-making process behind choosing whether or not to smoke significantly deviates from the assumptions that underlie rational choice theory.

Rational choice theory assumes stable preferences, foresight, knowledge, and adequate cognitive abilities to make the decision to begin or continue smoking. However, data shows these assumptions are violated, as the majority of smokers begin during adolescence and continue into adulthood through addictive consumption. Additionally, there is no evidence suggesting that individuals who start smoking as adults engage in deliberate decision-making processes in which they evaluate risks against benefits. In fact, previous studies suggest the opposite: adults, who are presumably better equipped to consider the risks and benefits of smoking, do not anticipate regret or understand addiction.

The authors also explore how framing impacts decision-making by building upon the studies of Kahneman and Tversky, which demonstrate that people’s preferences and choices vary according to how information is presented, even when the substance of the information remains constant. They found that people were more likely to accept risk when results were presented as potential losses than when those same results were presented as potential gains. Ultimately, smokers find the loss of smoking more significant than the potential gain of better health.

The FDA used consumer surplus, a measure grounded in rational choice theory, to estimate a theoretical cost of not smoking. In doing so, it ignored strong empirical evidence against the validity of applying rational choice to smoking decisions. This led the FDA to overestimate the costs of reducing smoking and underestimate the net benefits. To create successful policies, it is important that these agencies understand consumers’ decision-making processes – rational or otherwise.

Article Source: Anna V. Song, Paul Brown, and Stanton A. Glantz, “When Health Policy and Empirical Evidence Collide: The Case of Cigarette Package Warning Labels and Economic Consumer Surplus,” American Journal of Public Health, February 2014, Vol. 104, No. 2.

Feature photo: cc/(Shahbaz Majeed)