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Economic Policy Uncertainty and Self-Control: Evidence from Unhealthy Choices

Published online by Cambridge University Press:  01 September 2020

Ivalina Kalcheva ,
Ping McLemore  and
Richard Sias
Ivalina Kalcheva
Affiliation:
University of Texas at San Antonio College of Businessivalina.kalcheva@utsa.edu
Ping McLemore
Affiliation:
Federal Reserve Bank of Richmond ping.mclemore@rich.frb.org
Richard Sias*
Affiliation:
University of Arizona Eller College of Management sias@email.arizona.edu
*
sias@email.arizona.edu (corresponding author)
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Abstract

We hypothesize that greater economic policy uncertainty (EPU) leads to increases in unhealthy behaviors by lowering individuals’ impulse control. Based on 6.1 million interviews over 22 years, our analysis reveals a positive relation between EPU and the propensity to make poor lifestyle choices, including higher rates of alcohol consumption, a larger number of drinks consumed, and greater binge drinking. EPU has long-lasting effects on drinking behavior, consistent with habit formation. Moreover, the relation is stronger for younger individuals whose habits are more malleable. We find similar results when using smoking rates to measure unhealthy choices.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 4 , June 2021 , pp. 1446 - 1475
Copyright
© THE AUTHOR(S), 2020. PUBLISHED BY CAMBRIDGE UNIVERSITY PRESS ON BEHALF OF THE MICHAEL G. FOSTER SCHOOL OF BUSINESS, UNIVERSITY OF WASHINGTON

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Footnotes

The authors thank an anonymous referee, Alex Butler, Tom Chang, Robert Durand, Matthias Feldhues, Laura Gonzalez, Gloria Gonzalez-Rivera, Najrin Khanom, Edward Lawrence, Tae-Hwy Lee, Babak Lotfaliei, William Mullins, Yuka Nishikawa, Samuel Ouzan, Veronika Pool, David Rakowski, Vulnet Sejdiu, Matthew Serfling, Dag Sommervoll, Joshua Spizman, Arsenio Staer, Sebastian Stöckl, Hai Tran, Erdem Ucar, Aman Ullah, and participants at the 2016 Eastern Finance Association Annual Meetings, 2017 FMA European Conference, 2017 California Corporate Finance Conference, 2017 Academy of Behavioral Finance and Economics, 14th Western Economic Association International Conference, Federal Reserve Bank of Richmond, 2018 Baltimore Area Finance Conference, 2018 Southwest Experimental and Behavioral Economics Workshop, and 2018 Financial Management Association Annual Meetings. The views expressed herein are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of Richmond or the Federal Reserve System. All errors are our own.

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