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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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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
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  1. Hirshleifer, Jack, 1985. "The Expanding Domain of Economics," American Economic Review, American Economic Association, vol. 75(6), pages 53-68, December.
  2. 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.
  3. Theodore C. Bergstrom, 1995. "Economics in a Family Way," Labor and Demography 9507002, EconWPA, revised 06 Feb 1996.
  4. Hirshleifer, Jack, 1977. "Economics from a Biological Viewpoint," Journal of Law and Economics, University of Chicago Press, vol. 20(1), pages 1-52, April.
  5. Michael Grossman & Frank J. Chaloupka & Ismail Sirtalan, 1995. "An Empirical Analysis of Alcohol Addiction: Results from the Monitoring the Future Panels," NBER Working Papers 5200, National Bureau of Economic Research, Inc.
  6. 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.
  7. W. Pesendorfer & F. Gul, 1999. "Temptation and Self-Control," Princeton Economic Theory Papers 99f1, Economics Department, Princeton University.
  8. O'Donoghue, Ted & Rabin, Matthew, 2002. "Addiction and Present-Biased Preferences," Working Papers 02-10, Cornell University, Center for Analytic Economics.
  9. repec:tpr:qjecon:v:112:y:1997:i:2:p:443-77 is not listed on IDEAS
  10. 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.
  11. Larry Samuelson, 2004. "Information-Based Relative Consumption Effects," Econometrica, Econometric Society, vol. 72(1), pages 93-118, 01.
  12. Ernst Fehr & Peter K. Zych, 2003. "Do Addicts Behave Rationally?," Experimental 0305002, EconWPA.
  13. B. Douglas Bernheim & Antonio Rangel, 2002. "Addiction and Cue-Conditioned Cognitive Processes," NBER Working Papers 9329, National Bureau of Economic Research, Inc.
  14. 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.
  15. Laibson, David I., 2000. "A Cue-Theory of Consumption," Scholarly Articles 4481496, Harvard University Department of Economics.
  16. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  17. Arthur J. Robson, 2001. "The Biological Basis of Economic Behavior," Journal of Economic Literature, American Economic Association, vol. 39(1), pages 11-33, March.
  18. repec:tpr:qjecon:v:116:y:2001:i:4:p:1261-1303 is not listed on IDEAS
  19. Orphanides, Athanasios & Zervos, David, 1998. "Myopia and Addictive Behaviour," Economic Journal, Royal Economic Society, vol. 108(446), pages 75-91, January.
  20. 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.
  21. 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.
  22. Rogers, Alan R, 1994. "Evolution of Time Preference by Natural Selection," American Economic Review, American Economic Association, vol. 84(3), pages 460-81, June.
  23. repec:tpr:qjecon:v:112:y:1997:i:2:p:375-405 is not listed on IDEAS
  24. Loewenstein, George, 1996. "Out of Control: Visceral Influences on Behavior," Organizational Behavior and Human Decision Processes, Elsevier, vol. 65(3), pages 272-292, March.
  25. Jack Hirshleifer, 1977. "Economics from a Biological Viewpoint," UCLA Economics Working Papers 087, UCLA Department of Economics.
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