DECISION-MAKING & ‘DISTANT’ FUTURES: Help from Health Policy (Part III)
Social 'under'investment, smoking, and R&D.
Previously, we discussed how discounting the future leads to worse choices today and how different ways of discounting call for different solutions. Today, let's go beyond your New Year's resolution into public health settings.
1. Public Policy and 'under'investment
Discounting the future may lead to 'under'investing today in things you need to pay off in the future. For a society, the “investments” of education and retirement savings may be of particular concern. Playing hooky rather than studying is detrimental to an individual (and probably society) come adulthood. Similarly, destitute elderly are undesirable for a morally-minded populace.
Recall that one possible solution is a commitment contract—bind my hands to make the forward-looking decision. For these investments, we have commissioned the government for commitment. Mandatory school enrollment and payroll funding of Social Security are really saying "Invest today or go to jail! Hey, just looking out for you and your ß."
2. Smoking and Addiction
Addiction appears in this equation through "time inconsistent choices." For example, instead of three 10-hour study days, today it seems equally fine to go to the beach followed by two 15-hour study days. But come tomorrow’s 15 hours, you are regretting this choice! The same struggle exists in substance use leading to addiction tomorrow. People who value the future less are more likely to consume addictive substances.
One "commitment contract" is to make today’s choice more expensive- i.e. high taxes on ‘sin’ items such as cigarettes. The ACA’s high taxes on tanning salons decreased tanning in high school students by over half from 15.6 to 7.3 percent within 6 years.1 Alternatively, education and outreach are effective if individuals underestimate true future costs. Anti-smoking advertising was particularly effective in reducing smoking.2
3. Research and Development
Whether as an individual or a firm, if payoffs or profits accrue far in the future with high costs today, we’re less likely to undertake a project. Drug development has high R&D costs today, often with uncertain future payoffs. How do we still encourage new drug development? Patents increase future payoffs by preventing generic competition, which incentivizes high cost R&D today. I layout more on patent motivations here.
Read the rest of the Decision-Making and Distant Futures series: An Irksome Equation (Part I), ßest Defense is a Good Offense (Part II)