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A Theory of Natural Addiction

  • Trenton G. Smith

    (Washington State University)

  • Attila Tasnádi

    (Corvinus University of Budapest)

Economic theories of rational addiction aim to describe consumer behavior in the presence of habit-forming goods. We provide a biological foundation for this body of work by formally specifying conditions under which it is optimal to form a habit. We demonstrate the empirical validity of our thesis with an in-depth review and synthesis of the biomedical literature concerning the action of opiates in the mammalian brain and their e ects on behavior. Our results lend credence to many of the unconventional behavioral assumptions employed by theories of rational addiction, including adjacent complementarity and the importance of cues, attention, and self-control in determining the behavior of addicts. Our approach suggests, however, that addiction is 'harmful' only when the addict fails to implement the optimal solution. We offer evidence for the special case of the opiates that harmful addiction is the manifestation of a mismatch between behavioral algorithms encoded in the human genome and the expanded menu of choices- -generated for example, by advances in drug delivery technology--faced by consumers in the modern world.

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File URL: http://econwpa.repec.org/eps/mic/papers/0503/0503006.pdf
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Paper provided by EconWPA in its series Microeconomics with number 0503006.

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Length: 41 pages
Date of creation: 10 Mar 2005
Date of revision:
Handle: RePEc:wpa:wuwpmi:0503006
Note: Type of Document - pdf; pages: 41. UCLA International Institute Global Fellows Working Paper Series; December 18, 2003
Contact details of provider: Web page: http://econwpa.repec.org

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  1. 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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  3. Hirshleifer, Jack, 1985. "The Expanding Domain of Economics," American Economic Review, American Economic Association, vol. 75(6), pages 53-68, December.
  4. B. Douglas Bernheim & Antonio Rangel, 2003. "Addiction and Cue-Conditioned Cognitive Processes," NajEcon Working Paper Reviews 666156000000000052, www.najecon.org.
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  6. Ted O'Donoghue & Matthew Rabin, 2003. "Addiction and Present-Biased Preferences," Game Theory and Information 0303005, EconWPA.
  7. Bergstrom, T., 1995. "Economics of a Family Way," Papers 95-07, Michigan - Center for Research on Economic & Social Theory.
  8. Faruk Gul & Wolfgang Pesendorfer, 2001. "Temptation and Self-Control," Econometrica, Econometric Society, vol. 69(6), pages 1403-1435, November.
  9. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 443-478.
  10. Fehr, Ernst & Zych, Peter K, 1998. " Do Addicts Behave Rationally?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(3), pages 643-62, September.
  11. Grossman, Michael & Chaloupka, Frank J & Sirtalan, Ismail, 1998. "An Empirical Analysis of Alcohol Addiction: Results from the Monitoring the Future Panels," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 39-48, January.
  12. 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.).
  13. Jonathan Gruber & Botond Köszegi, 2001. "Is Addiction "Rational"? Theory and Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1261-1303.
  14. Orphanides, Athanasios & Zervos, David, 1998. "Myopia and Addictive Behaviour," Economic Journal, Royal Economic Society, vol. 108(446), pages 75-91, January.
  15. Smith, Trenton G, 2002. "The McDonald's Equilibrium: Advertising, Empty Calories, and the Endogenous Determination of Dietary Preferences," University of California at Santa Barbara, Economics Working Paper Series qt0hx9x4jr, Department of Economics, UC Santa Barbara.
  16. Smith, Trenton G, 2002. "Obesity and Nature's Thumbprint: How Modern Waistlines Can Inform Economic Theory," University of California at Santa Barbara, Economics Working Paper Series qt31g1m028, Department of Economics, UC Santa Barbara.
  17. Loewenstein, George, 1996. "Out of Control: Visceral Influences on Behavior," Organizational Behavior and Human Decision Processes, Elsevier, vol. 65(3), pages 272-292, March.
  18. Hirshleifer, Jack, 1977. "Economics from a Biological Viewpoint," Journal of Law and Economics, University of Chicago Press, vol. 20(1), pages 1-52, April.
  19. Daniel Kahneman & Peter P. Wakker & Rakesh Sarin, 1997. "Back to Bentham? Explorations of Experienced Utility," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 375-406.
  20. Rogers, Alan R, 1994. "Evolution of Time Preference by Natural Selection," American Economic Review, American Economic Association, vol. 84(3), pages 460-81, June.
  21. Jack Hirshleifer, 1977. "Economics from a Biological Viewpoint," UCLA Economics Working Papers 087, UCLA Department of Economics.
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  23. Ted Bergstrom, 1995. "Economic in a Family Way," Papers _028, University of Michigan, Department of Economics.
  24. 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.
  25. Larry Samuelson, 2004. "Information-Based Relative Consumption Effects," Econometrica, Econometric Society, vol. 72(1), pages 93-118, 01.
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