An internality is a term used in behavioral economics Behavioral economics uses social, cognitive and emotional factors in understanding the economic decisions of individuals and institutions performing economic functions, including consumers, borrowers and investors, and their effects on market prices, returns and the resource allocation to describe those types of behaviors that impose costs on a person in the long-run that are not taken into account when making decisions in the present. Classical Economics discourages government from creating legislation that targets internalities, because it is assumed that the consumer takes these personal costs into account when paying for the good that causes the internality. For example, cigarettes should be taxed because of the negative consumption externalities In economics, an externality is a cost or benefit, not transmitted through prices, incurred by a party who did not agree to the action causing the cost or benefit. A benefit in this case is called a positive externality or external benefit, while a cost is called a negative externality or external cost that they impose, such as second-hand smoke, not because the smoker harms him or herself by smoking. This is because the economic assumption of rationality Rational choice theory, also known as rational action theory, is a framework for understanding and often formally modeling social and economic behavior. It is the dominant theoretical paradigm in microeconomics. It is also central to modern political science and is used by scholars in other disciplines such as sociology and philosophy would pose the argument that the smoker has taken into account the damage that smoking does to himself, but still desires the cigarettes more than the long-term health.
