Education, Information Processing, and Impulse Control: Theory and Evidence from Cigarette Consumption

A theoretical model of addiction was developed where a consumer can benefit from negative emotions caused by health warning labels. The model was then tested using both aggregate market data on all consumers and also individual level self-reported data on recent smokers. A model of quantity consumed was estimated for the aggregate data, and models of quantity consumed, knowledge of smoking related facts, feeling attributable to a health warning label, and product characteristic choice were estimated using the individual level data. Adding a graphic warning label to a text only label reduces consumption in the aggregate market data by 10% and also the individual level self-reported data by 3% to 4%. Text and graphic health warning labels inform consumers about smoking related facts, and graphics make consumers more likely to be attentive to or to recall text information, so that graphic warning labels combined with text warning labels are not redundant. Knowledge is also increasing in education, and education makes consumers more likely to be informed by text information on a warning label, although both of these effects level off at high levels of education. Further, adding a graphic causes a general tendency to acknowledge that cigarette smoke contains a chemical when probed, and this generalization or inference is the same across education groups. It is suspected that the survey questions about feeling are not measuring cue-responses as they were intended, because of the variety of response patterns across feelings, and because I observe results most readily explained by biases in recalling and reporting past feelings. Because of this, I argue that better instruments are needed to measure cue-responses. In addition, I found that the quantity consumed, conditional on being a recent smoker, is greater if there are children in the household, where children represent a delayed cost of smoking. This suggests that consumers use a variety of tactics to control their addictive behavior.