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Addiction and Present-Biased Preferences

  • O’Donoghue, Ted
  • Rabin, Matthew

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 Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt3v86x53j.

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Date of creation: 01 Feb 2002
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Handle: RePEc:cdl:econwp:qt3v86x53j
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  1. Becker, Gary S & Grossman, Michael & Murphy, Kevin M, 1994. "An Empirical Analysis of Cigarette Addiction," American Economic Review, American Economic Association, vol. 84(3), pages 396-418, June.
  2. 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.
  3. Harris, Christopher & Laibson, David, 2001. "Dynamic Choices of Hyperbolic Consumers," Econometrica, Econometric Society, vol. 69(4), pages 935-57, July.
  4. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  5. Ted O' Donoghue & Matthew Rabin, 2001. "Choice and Procrastination," Microeconomics 0012002, EconWPA.
  6. Loewenstein, George & Thaler, Richard H, 1989. "Intertemporal Choice," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 181-93, Fall.
  7. Fischer, Carolyn, 1999. "Read This Paper Even Later: Procrastination with Time-Inconsistent Preferences," Discussion Papers dp-99-20, Resources For the Future.
  8. Ryder, Harl E, Jr & Heal, Geoffrey M, 1973. "Optimum Growth with Intertemporally Dependent Preferences," Review of Economic Studies, Wiley Blackwell, vol. 40(1), pages 1-33, January.
  9. Ted O'Donoghue and Matthew Rabin ., 1997. "Doing It Now or Later," Economics Working Papers 97-253, University of California at Berkeley.
  10. David I. Laibson, 1996. "Hyperbolic Discount Functions, Undersaving, and Savings Policy," NBER Working Papers 5635, National Bureau of Economic Research, Inc.
  11. Carrillo, Juan D & Mariotti, Thomas, 2000. "Strategic Ignorance as a Self-Disciplining Device," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 529-44, July.
  12. Orphanides, Athanasios & Zervos, David, 1995. "Rational Addiction with Learning and Regret," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 739-58, August.
  13. Goldbaum, David, 2000. "Life Cycle Consumption of a Harmful and Addictive Good," Economic Inquiry, Western Economic Association International, vol. 38(3), pages 458-69, July.
  14. Ainslie, George, 1991. "Derivation of "Rational" Economic Behavior from Hyperbolic Discount Curves," American Economic Review, American Economic Association, vol. 81(2), pages 334-40, May.
  15. Wang Ruqu, 2007. "The Optimal Consumption and the Quitting of Harmful Addictive Goods," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-38, February.
  16. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
  17. Suranovic, Steven M. & Goldfarb, Robert S. & Leonard, Thomas C., 1999. "An economic theory of cigarette addiction," Journal of Health Economics, Elsevier, vol. 18(1), pages 1-29, January.
  18. Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 675-700, August.
  19. 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.
  20. Jonathan Gruber & Botond Koszegi, 2000. "Is Addiction "Rational"? Theory and Evidence," NBER Working Papers 7507, National Bureau of Economic Research, Inc.
  21. Goldman, Steven Marc, 1979. "Intertemporally Inconsistent Preferences and the Rate of Consumption," Econometrica, Econometric Society, vol. 47(3), pages 621-26, May.
  22. 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.
  23. Akerlof, George A, 1991. "Procrastination and Obedience," American Economic Review, American Economic Association, vol. 81(2), pages 1-19, May.
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