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Addiction and Present-Biased Preferences

  • O'Donoghue, Ted

    (Cornell U)

  • Rabin, Matthew

    (U of California, Berkeley)

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 selfcontrol 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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File URL: https://cae.economics.cornell.edu/Addicts.pdf
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Paper provided by Cornell University, Center for Analytic Economics in its series Working Papers with number 02-10.

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Date of creation: Jul 2002
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Handle: RePEc:ecl:corcae:02-10
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  1. O'Donoghue, Ted & Rabin, Matthew, 1997. "Doing It Now or Later," Department of Economics, Working Paper Series qt7t44m5b0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. 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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  4. 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.).
  5. Loewenstein, George & O'Donoghue, Ted & Rabin, Matthew, 2000. "Projection Bias in Predicting Future Utility," Department of Economics, Working Paper Series qt5qh6142m, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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  7. George Loewenstein & Drazen Prelec, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 573-597.
  8. 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.
  9. Gary S. Becker & Michael Grossman & Kevin M. Murphy, 1990. "An Empirical Analysis of Cigarette Addiction," NBER Working Papers 3322, National Bureau of Economic Research, Inc.
  10. 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.
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  12. Loewenstein, George & Thaler, Richard H, 1989. "Intertemporal Choice," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 181-93, Fall.
  13. Ted O'Donoghue & Matthew Rabin, 2001. "Choice and Procrastination," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 121-160.
  14. Akerlof, George A, 1991. "Procrastination and Obedience," American Economic Review, American Economic Association, vol. 81(2), pages 1-19, May.
  15. Fischer, Carolyn, 1999. "Read This Paper Even Later: Procrastination with Time-Inconsistent Preferences," Discussion Papers dp-99-20, Resources For the Future.
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  17. Juan D. Carrillo & Thomas Mariotti, 2000. "Strategic Ignorance as a Self-Disciplining Device," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 529-544.
  18. Jonathan Gruber & Botond Koszegi, 2000. "Is Addiction "Rational"? Theory and Evidence," NBER Working Papers 7507, National Bureau of Economic Research, Inc.
  19. Goldman, Steven Marc, 1979. "Intertemporally Inconsistent Preferences and the Rate of Consumption," Econometrica, Econometric Society, vol. 47(3), pages 621-26, May.
  20. David I. Laibson, 1996. "Hyperbolic Discount Functions, Undersaving, and Savings Policy," NBER Working Papers 5635, National Bureau of Economic Research, Inc.
  21. 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.
  22. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
  23. 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.
  24. E. S. Phelps & R. A. Pollak, 1968. "On Second-Best National Saving and Game-Equilibrium Growth," Review of Economic Studies, Oxford University Press, vol. 35(2), pages 185-199.
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