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Rational addiction
Rational addiction is the hypothesis that addictions can be usefully modeled as specific kinds of rational, forward-looking, optimal consumption plans. The canonical theory comes from work done by Kevin M. Murphy and Nobel Laureate Gary S. Becker.〔Becker, G. and K. Murphy (1988) "A theory of rational addiction". ''Journal of Political Economy'', 96, 675-700.〕 A theory of addictions in the broad sense—for example, to heroin, tobacco, religion, or food—the article tried to reconcile addictions with the standard rational choice framework of modern economics.
Though controversial, this theoretical approach has become "one of the standard models in the literature on addictive behavior" in economics,〔Ferguson, Brian S. (2000) "Interpreting the rational addiction model". ''Health Economics'', Vol. 9: Iss. 7, pp. 587-598, http://onlinelibrary.wiley.com/doi/10.1002/1099-1050(200010)9:7%3C587::AID-HEC538%3E3.0.CO;2-J/abstract〕 and a variety of extensions and modifications have been developed and published by other authors over the years. A survey of researchers who had authored or co-authored peer-reviewed articles on rational addiction theory indicates that the researchers see the theories as successful in a number of ways: 73% of the respondents see them as extending and enriching consumer theory, 56% see them as containing relevant insights on the welfare effects of addictive goods and public policies towards these, 44% see them as providing useful tools for predicting aggregate consumption behavior, 39% see them as providing insights into how addicts choose that are relevant for treatment professionals, and 27% see them as providing evidence that addictions are actually a sequence of rational, welfare maximizing choices.〔Melberg, H. O. and O. J. Rogeberg (2010) "Rational Addiction Theory: A Survey of Opinions". ''Journal of Drug Policy Analysis'', Vol. 3: Iss. 1, Article 5, http://www.bepress.com/jdpa/vol3/iss1/art5/〕
== The Becker and Murphy (1988) model==
The original theory models addictions as the implementation of a forward-looking consumption plan made under full certainty and perfect information, where the individual is entirely committed toward maximizing utility. ''Addiction'' is defined in a non-physiological sense as a causal effect of past consumption on current consumption, so that addictiveness is specific to individuals. The addict knows exactly how the good will affect him, and the reason he consumes more and more ("gets hooked") is that this is the pattern of consumption that maximizes his discounted utility. He knows that consuming the addictive good will change his preferences, altering both his future baseline level of utility and the marginal utility of consuming the addictive good in the future. For example, a modeled smoker realizes that smoking one more cigarette today will increase his desire to smoke tomorrow and decrease his future health. Rational choice amounts to comparing the benefit of smoking that cigarette to the total discounted costs of smoking that cigarette, including both the monetary cost of the cigarette, the health damages of that cigarette, and the costs of increased future smoking resulting from greater addiction. As a result, if cigarette taxes are credibly announced to double in one year's time, cigarette smokers will cut their smoking today, because the anticipated future costs of addiction to tobacco have gone up.
A sizeable econometric literature has developed on rational addiction, often reporting evidence in favor of rational addiction. For example, Gruber and Koszegi (2001)〔Gruber, J. and B. Koszegi (2001) "Is addiction rational? Theory and evidence". ''Quarterly Journal of Economics'' 116: 4 1261-303.〕 show that the model's prediction that announced future tax increases should decrease current smoking is consistent with the evidence. Auld and Grootendorst (2004)〔Auld, M.C. and P. Grootendorst (2004) "An empirical analysis of milk addiction". ''Journal of Health Economics'', 23, 1117-33.〕 show, however, that the empirical version of the rational addiction model tends to produce spurious evidence of addictiveness when aggregate data are used.
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