Rational addiction
Encyclopedia
Rational addiction is the hypothesis that addictions (to heroin, tobacco, television, etc.) can be usefully modeled as specific kinds of rational, forward-looking, optimal consumption plans. The canonical theory is due to Kevin M. Murphy
and Nobel Prize Winner Gary S. Becker. A theory of addictions
in the broad sense—for example, to heroin, tobacco, religion, or food—the article tried to reconcile addictions with the standard rational choice framework of modern economics. Though controversial, the theoretical approach has become the standard approach to understanding addiction in economics, and a variety of extensions and modifications have been developed and published by other authors over the years. A survey of researchers who had authored or co-authored peer-reviewed articles on rational addiction theory indicates that the researchers see the theories as successful in a number of ways: 73% of the respondents see them as extending and enriching consumer theory, 56% see them as containing relevant insights on the welfare effects of addictive goods and public policies towards these, 44% see them as providing useful tools for predicting aggregate consumption behavior, 39% see them as providing insights into how addicts choose that are relevant for treatment professionals, and 27% see them as providing evidence that addictions are actually a sequence of rational, welfare maximizing choices .
, where the individual is entirely committed toward maximizing utility. Addiction is defined in a non-physiological sense as a causal effect of past consumption on current consumption, so that addictiveness is specific to individuals. The addict knows exactly how the good will affect him, and the reason he consumes more and more ("gets hooked") is that this is the pattern of consumption that maximizes his discounted utility
. He knows that consuming the addictive good will change his preferences, altering both his future baseline level of utility and the marginal utility of consuming the addictive good in the future. For example, a modeled smoker realizes that smoking one more cigarette today will increase his desire to smoke tomorrow and decrease his future health. Rational choice amounts to comparing the benefit of smoking that cigarette to the total discounted costs of smoking that cigarette, including both the monetary cost of the cigarette, the health damages of that cigarette, and the costs of increased future smoking resulting from greater addiction. As a result, if cigarette taxes are credibly announced to double in one year's time, cigarette smokers will cut their smoking today, because the anticipated future costs of addiction to tobacco have gone up.
A sizeable econometric literature has developed on rational addiction, often reporting evidence in favor of rational addiction. For example, Gruber and Koszegi (2001) show that the model's prediction that announced future tax increases should decrease current smoking is consistent with the evidence. Auld and Grootendorst (2004) show, however, that the empirical version of the rational addiction model tends to produce spurious evidence of addictiveness when aggregate data are used.
s (where you know and rationally take into account how the drugs make you care less about your future), and quasi-hyperbolic discounting
(the way the consumer takes the future into account makes him inconsistent over time - laying plans that he later deviates from). This latter theory is an example of an extension trying to shift the theory away from its laissez-faire
and drug-liberal
implications for policy. The fully rational "rational addiction models" are widely held to have the policy implication that drug users - even if they are unhappy on drugs - would be even more unhappy and worse off if they were forced off drugs. The government's policy - in this view - should be restricted to ensuring that people are well-informed and don't impose externalities on others (e.g., second-hand smoke).
who in a series of works has claimed that theories in Becker's framework are conceptually incoherent in their view of preferences, as well as inconsistent with the ambivalence and desire for increased self-regulation that is empirically displayed by many addicts. Economist Ole Rogeberg has used the theories as a case example of what he calls "absurd theories" in economics, and argues that the theories "illustrate how absurd choice theories in economics get taken seriously as possibly true explanations and tools for welfare analysis despite being poorly interpreted, empirically unfalsifiable, and based on wildly inaccurate assumptions selectively justified by ad-hoc stories."
Kevin M. Murphy
Kevin Miles Murphy is the George J. Stigler Distinguished Service Professor of Economics at the University of Chicago Booth School of Business and a Senior Fellow at the Hoover Institution....
and Nobel Prize Winner Gary S. Becker. A theory of addictions
Behavioral addiction
Behavioral addiction is a form of addiction which does not rely on drugs or alcohol. Increasingly referred to as process addiction or non-substance-related addiction ) behavioral addiction includes a compulsion to repeatedly engage in an action until said action causes serious negative consequences...
in the broad sense—for example, to heroin, tobacco, religion, or food—the article tried to reconcile addictions with the standard rational choice framework of modern economics. Though controversial, the theoretical approach has become the standard approach to understanding addiction in economics, and a variety of extensions and modifications have been developed and published by other authors over the years. A survey of researchers who had authored or co-authored peer-reviewed articles on rational addiction theory indicates that the researchers see the theories as successful in a number of ways: 73% of the respondents see them as extending and enriching consumer theory, 56% see them as containing relevant insights on the welfare effects of addictive goods and public policies towards these, 44% see them as providing useful tools for predicting aggregate consumption behavior, 39% see them as providing insights into how addicts choose that are relevant for treatment professionals, and 27% see them as providing evidence that addictions are actually a sequence of rational, welfare maximizing choices .
The Becker and Murphy (1988) model
The original theory models addictions as the implementation of a forward-looking consumption plan made under full certainty and perfect informationPerfect information
In game theory, perfect information describes the situation when a player has available the same information to determine all of the possible games as would be available at the end of the game....
, where the individual is entirely committed toward maximizing utility. Addiction is defined in a non-physiological sense as a causal effect of past consumption on current consumption, so that addictiveness is specific to individuals. The addict knows exactly how the good will affect him, and the reason he consumes more and more ("gets hooked") is that this is the pattern of consumption that maximizes his discounted utility
Discounted utility
Discounted utility is an economics term in which economists, accountants, underwriters, and other financial analysts include the future discounted value of a good in its present value...
. He knows that consuming the addictive good will change his preferences, altering both his future baseline level of utility and the marginal utility of consuming the addictive good in the future. For example, a modeled smoker realizes that smoking one more cigarette today will increase his desire to smoke tomorrow and decrease his future health. Rational choice amounts to comparing the benefit of smoking that cigarette to the total discounted costs of smoking that cigarette, including both the monetary cost of the cigarette, the health damages of that cigarette, and the costs of increased future smoking resulting from greater addiction. As a result, if cigarette taxes are credibly announced to double in one year's time, cigarette smokers will cut their smoking today, because the anticipated future costs of addiction to tobacco have gone up.
A sizeable econometric literature has developed on rational addiction, often reporting evidence in favor of rational addiction. For example, Gruber and Koszegi (2001) show that the model's prediction that announced future tax increases should decrease current smoking is consistent with the evidence. Auld and Grootendorst (2004) show, however, that the empirical version of the rational addiction model tends to produce spurious evidence of addictiveness when aggregate data are used.
Later extensions
Later extensions by other authors allow for uncertainty and a form of regret (you make a "rational bet" with positive expected return, but you're unlucky), cyclical consumption (interpreted as bingeing), chaotic consumption (fully deterministic but highly irregular consumption patterns strongly influenced by initial conditions), endogenous time preferenceTime preference
In economics, time preference pertains to how large a premium a consumer places on enjoyment nearer in time over more remote enjoyment....
s (where you know and rationally take into account how the drugs make you care less about your future), and quasi-hyperbolic discounting
Hyperbolic discounting
In behavioral economics, hyperbolic discounting is a time-inconsistent model of discounting.Given two similar rewards, humans show a preference for one that arrives sooner rather than later. Humans are said to discount the value of the later reward, by a factor that increases with the length of the...
(the way the consumer takes the future into account makes him inconsistent over time - laying plans that he later deviates from). This latter theory is an example of an extension trying to shift the theory away from its laissez-faire
Laissez-faire
In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....
and drug-liberal
Arguments for and against drug prohibition
Arguments about the prohibition of drugs, and over drug policy reform, are subjects of considerable controversy. The following is a presentation of major drug policy arguments, including those for drug law enforcement on one side of the debate, and arguments for drug law reform on the other.-...
implications for policy. The fully rational "rational addiction models" are widely held to have the policy implication that drug users - even if they are unhappy on drugs - would be even more unhappy and worse off if they were forced off drugs. The government's policy - in this view - should be restricted to ensuring that people are well-informed and don't impose externalities on others (e.g., second-hand smoke).
Criticism
Criticism of rational addiction theories have emerged along different lines. One strand of criticism is the already mentioned econometric work. A prominent critic working along different lines is the philosopher Jon ElsterJon Elster
Jon Elster is a Norwegian social and political theorist who has authored works in the philosophy of social science and rational choice theory...
who in a series of works has claimed that theories in Becker's framework are conceptually incoherent in their view of preferences, as well as inconsistent with the ambivalence and desire for increased self-regulation that is empirically displayed by many addicts. Economist Ole Rogeberg has used the theories as a case example of what he calls "absurd theories" in economics, and argues that the theories "illustrate how absurd choice theories in economics get taken seriously as possibly true explanations and tools for welfare analysis despite being poorly interpreted, empirically unfalsifiable, and based on wildly inaccurate assumptions selectively justified by ad-hoc stories."