NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Risk Tolerance and Alcohol Demand Among Adults and Older Adults

Dhaval Dave, Henry Saffer

NBER Working Paper No. 13482
Issued in October 2007
NBER Program(s):   HE

This study has two primary goals. These are the examination of the effect of risk tolerance on individuals' demand for alcohol and second, the examination of the demand for alcohol by older adults over the age of 55. The data sets employed are multiple waves from the Panel Study of Income Dynamics (PSID) and the Health and Retirement Study (HRS). While risk tolerance can impact the level of alcohol consumption, it may also affect the sensitivity of demand to prices. There are parallels between the economist's and the psychologist's concept of risk tolerance. Research on attitudes towards risk by psychologists is part of a larger theoretical and empirical literature on personality traits. Psychologists have found risk tolerance to be an important determinant of alcohol consumption. The empirical results indicate that risk aversion has a significant negative effect on alcohol consumption, with the prevalence and consumption among risk-tolerant individuals being six to eight percent higher. Furthermore, the tax elasticity is similar across both risk-averse and risk-tolerant individuals. This suggests that tax policies may be effective in deterring alcohol consumption even among those who have a higher propensity for alcohol use. The significance of research on alcohol demand by individuals ages 55 and older is highlighted by the increased potential for alcohol-related adverse consequences among this demographic group. Comparing younger adults (ages 21-54) with older adults, responses to taxes and prices are higher among the older sub-population. The tax elasticity is estimated at -0.05 for younger adults, compared to -0.20 for older adults.

download in pdf format
   (216 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

This paper is available as PDF (216 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Published: Dave, D. M., Saffer, H. (2008). Alcohol Demand and Risk Preference. Journal of Economic Psychology, 29 (6), 810-831.

Users who downloaded this paper also downloaded these:
Dynarski w10470 Who Benefits from the Education Saving Incentives? Income, Educational Expectations, and the Value of the 529 and Coverdell
Miron and Tetelbaum w13257 Does the Minimum Legal Drinking Age Save Lives?
Ayyagari, Deb, Fletcher, Gallo, and Sindelar w15124 Sin Taxes: Do Heterogeneous Responses Undercut Their Value?
Carpenter and Dobkin w13374 The Effect of Alcohol Consumption on Mortality: Regression Discontinuity Evidence from the Minimum Drinking Age
Miron w7130 The Effect of Alcohol Prohibition on Alcohol Consumption
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us