Hung, Angela: A Behavioral Theory of Addiction
World Conference Econometric Society, 2000, Seattle

Angela Hung, California Institute of Technology
A Behavioral Theory of Addiction
Session: C-3-4  Saturday 12 August 2000  by Hung, Angela
Consumption of habit-forming goods, such as addictive substances, poses a challenge to economic models of rational, forward-looking agents. Previous economic research has attempted to explain why such agents would consume a good with potentially devastating effects (e.g., Becker and Murphy, 1988) and why they might eventually choose to quit their addictions (e.g., Orphanides and Zervos, 1995). However, these "rational" models have not captured a very pervasive and troubling characteristic of addiction: the pattern of quitting and relapse that is widely observed. This paper draws on findings from the neurobiological and psychological literature on addiction. There are two key features of the model. The first is the role that the agent's environment plays in shaping preferences. The second is that individuals may underestimate the long term effects (i.e. craving and tolerance) that can result from substance use. Given these two assumptions, the model generates behavior that mimics the cycle of quitting and relapsing.

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