Three Essays on Alcohol Economics

Jianxin Wang

Major Professor: Daniel E Houser, PhD, Department of Economics

Committee Members: Cesar Martinelli, Kevin McCabe, Johanna Mollerstrom

Online Location, Online
June 29, 2021, 10:00 AM to 11:00 AM

Abstract:

Social and business drinking is prevalent across many cultures. People often make interactive decisions under alcohol influence in these social drinking contexts. In this dissertation, I investigate the impacts of alcohol consumption on interactive economic decision making and the underlying mechanisms, particularly, behavior and decisions rely on high-order belief reasoning.

In chapter 1, I develop a theory that combines guilt-aversion with a canonical alcohol myopia framework. The GAAM (guilt aversion and alcohol myopia) model predicts that intoxication increases promise-making, but has no effect on promise-breaking. I test these predictions using a prisoner’s dilemma game with pre-play communication in a lab-in-the-field experiment. Among males, I find behavior consistent with predictions: intoxication promotes promise-making behavior but does not impact the rate at which promises are trusted or broken. Consequently, intoxication increases communication efficiency. I do not observe intoxication to impact female promise-making, trusting, or promise-breaking behaviors. This is consistent with previous empirical findings that females can display less sensitivity than males to alcohol-induced myopia. This study is a step towards developing the behavioral economics of alcohol intoxication and sheds light on motives underlying business drinking.

While business drinking is widely believed to promote trust and trustworthiness, experimental tests of this conjecture have not yet appeared. In chapter 2, I use a trust game in a lab-in-the-field experiment to fill this gap. In particular, I focus on the effectiveness of a trustee’s cheap-talk promise in promoting trust and trustworthiness after one has either consumed or not consumed alcohol. I find that trustees' promises enhance trustors' trust behaviors in both sober and intoxicated groups. However, trustees' promises only enhance trustworthy behavior in sober trustees, but not intoxicated trustees. I speculate that the underlying mechanism may be the detrimental impact of alcohol on the formation of higher order beliefs. This may interrupt the formation of guilt and leave promises ineffective as a commitment device. 

In view of the conjecture that the underlying mechanisms in both chapter 1 and 2 seems to refer to higher-order belief thinking, in chapter 3, I detail a procedure to test, directly in the lab, whether alcohol intoxication impairs high-order belief reasoning. Participants are randomly assigned into alcohol and placebo groups. To test whether alcohol consumption impact one’s own depth of reasoning and one’s belief about other’s reasoning ability, participants are asked to play an 11-20 game which relies on higher-order belief reasoning. I propose to use a tutorial method - some participants receive a game theory tutorial to achieve fully own reasoning ability. The change of strategy between participants who receive no tutorial and who receive tutorial, by playing with same type of opponent, is caused by one’s own reasoning ability. The change of strategy for participants who receive tutorial but playing with opponents who receive tutorial and who receive no tutorial, is caused by one’s belief about the opponent’s reasoning ability.  It is then possible to compare the above differences between placebo and alcohol groups to test whether alcohol intoxication impairs higher-order reasoning ability.