Addiction and Present-Biased Preferences

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Addiction and Present-Biased Preferences

Author Info

Ted O'Donoghue (Cornell University)
Matthew Rabin (University of California, Berkeley)

Abstract

We investigate the role that self-control problems modeled as time-inconsistent, present-biased preferences and a person's awareness of those problems might play in leading people to develop and maintain harmful addictions. Present-biased preferences create a tendency to over-consume addictive products, and awareness of future self-control problems can mitigate or exacerbate this over-consumption, depending on the environment. Our central concern is the welfare consequences of this over-consumption. Our analysis suggests that for realistic environments self-control problems are a plausible source of severely harmful addictions only in conjunction with some unawareness of future self- control problems.

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Paper provided by EconWPA in its series Game Theory and Information with number 0303005.

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Length: 53 pages
Date of creation: 21 Mar 2003
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Handle: RePEc:wpa:wuwpga:0303005

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Find related papers by JEL classification:
A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
B49 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Other
C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
D60 - Microeconomics - - Welfare Economics - - - General
D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

This paper has been announced in the following NEP Reports:

NEP-ALL-2003-03-25 (All new papers)
NEP-HEA-2003-03-25 (Health Economics)
NEP-MIC-2003-03-25 (Microeconomics)

References listed on IDEAS
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George Loewenstein, Ted O'Donoghue and Matthew Rabin., 2000. "Projection Bias in Predicting Future Utility," Economics Working Papers E00-284, University of California at Berkeley. [Downloadable!]
Other versions:
- George Loewenstein & Ted O'Donoghue & Matthew Rabin, 2000. "Projection Bias in Predicting Future Utility," Department of Economics, Working Paper Series 1029, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
- George Loewenstein & Ted O'Donoghue & Matthew Rabin, 2001. "Projection Bias in Predicting Future Utility," General Economics and Teaching 0012003, EconWPA. [Downloadable!]
- George Loewenstein & Ted O'Donoghue & Matthew Rabin, 2003. "Projection Bias In Predicting Future Utility," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1209-1248, November. [Downloadable!] (restricted)
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Other versions:
- Gary S. Becker & Michael Grossman & Kevin M. Murphy, 1990. "An Empirical Analysis of Cigarette Addiction," University of Chicago - George G. Stigler Center for Study of Economy and State 61, Chicago - Center for Study of Economy and State.
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Other versions:
- Ruqu Wang, 2007. "The Optimal Consumption and the Quitting of Harmful Addictive Goods," Contributions to Economic Analysis & Policy, Berkeley Electronic Press, vol. 7(1), pages 1684-1684. [Downloadable!] (restricted)
Ted O'Donoghue & Matthew Rabin, 2001. "Choice And Procrastination," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 121-160, February. [Downloadable!] (restricted)
Harris, Christopher & Laibson, David, 2001. "Dynamic Choices of Hyperbolic Consumers," Econometrica, Econometric Society, vol. 69(4), pages 935-57, July.
Other versions:
- Christopher Harris & David Laibson, 1999. "Dynamic Choices of Hyperbolic Consumers," Harvard Institute of Economic Research Working Papers 1886, Harvard - Institute of Economic Research.
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Other versions:
- Athanasios Orphanides & David Zervos, 1992. "Rational addiction with learning and regret," Finance and Economics Discussion Series 216, Board of Governors of the Federal Reserve System (U.S.).
Pollak, Robert A, 1970. "Habit Formation and Dynamic Demand Functions," Journal of Political Economy, University of Chicago Press, vol. 78(4), pages 745-63, Part I Ju. [Downloadable!] (restricted)
Ted O' Donoghue & Matthew Rabin, 2001. "Choice and Procrastination," Microeconomics 0012002, EconWPA. [Downloadable!]
Loewenstein, George & Prelec, Drazen, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 573-97, May. [Downloadable!] (restricted)
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Other versions:
- Gary S. Becker & Kevin M. Murphy, 1986. "A Theory of Rational Addiction," University of Chicago - George G. Stigler Center for Study of Economy and State 41, Chicago - Center for Study of Economy and State.

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