Alcohol Myopia and Risk Taking

The aim of this paper is to develop a model that explains how the consumption of some additive substances a¤ects an individual?s choice between risky alternatives. We do this by assuming that some additives substances, speci?cally alcohol, increase individual?s present bias. As individuals that consume alcohol show greater preference for the present and less for the future, they would ?nd risky choices with rewards in the present and costs in the future more attractive. Theferore, an individual that wouldn´t have accepted a lottery may do so after consuming alcohol and he regret his decision after the alcohol in his blood is eliminated. We analyze the e¤ect of two taxes in discouraging a risky activity: a tax on the consumption of alcohol and a tax (or penalty) if the future costs of the lottery are realized.habit-formation, risk taking, alcohol consumption