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Addiction and Present-Biased Preferences

  • Ted O'Donoghue

    (Cornell University)

  • Matthew Rabin

    (University 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 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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File URL: http://econwpa.repec.org/eps/game/papers/0303/0303005.pdf
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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
Date of revision:
Handle: RePEc:wpa:wuwpga:0303005
Note: 53 pages, Acrobat .pdf
Contact details of provider: Web page: http://econwpa.repec.org

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  1. 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.
  2. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  3. Akerlof, George A, 1991. "Procrastination and Obedience," American Economic Review, American Economic Association, vol. 81(2), pages 1-19, May.
  4. Ted O'Donoghue and Matthew Rabin ., 1997. "Doing It Now or Later," Economics Working Papers 97-253, University of California at Berkeley.
  5. 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.).
  6. 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.
  7. Fischer, Carolyn, 1999. "Read This Paper Even Later: Procrastination with Time-Inconsistent Preferences," Discussion Papers dp-99-20, Resources For the Future.
  8. 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.
  9. Ruqu Wang, 2000. "The Optimal Consumption and the Quitting of Harmful Addictive Goods," Econometric Society World Congress 2000 Contributed Papers 1122, Econometric Society.
  10. Loewenstein, George & Thaler, Richard H, 1989. "Intertemporal Choice," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 181-93, Fall.
  11. O'Donoghue, Ted & Rabin, Matthew, 2000. "Choice and Procrastination," Department of Economics, Working Paper Series qt5r26k54p, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  12. 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.
  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. Christopher Harris & David Laibson, 1999. "Dynamic Choices of Hyperbolic Consumers," Harvard Institute of Economic Research Working Papers 1886, Harvard - Institute of Economic Research.
  15. 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.
  16. 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.
  17. Goldman, Steven Marc, 1979. "Intertemporally Inconsistent Preferences and the Rate of Consumption," Econometrica, Econometric Society, vol. 47(3), pages 621-26, May.
  18. 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.
  19. Jonathan Gruber & Botond Koszegi, 2000. "Is Addiction "Rational"? Theory and Evidence," NBER Working Papers 7507, National Bureau of Economic Research, Inc.
  20. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
  21. 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.
  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. David I. Laibson, 1996. "Hyperbolic Discount Functions, Undersaving, and Savings Policy," NBER Working Papers 5635, National Bureau of Economic Research, Inc.
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