A Theory of Rational Addiction

Becker and Murphy develop a theory in which addiction – even strong addiction to alcohol, cigarettes, or heroin – is the outcome of a consistent, forward-looking plan to maximize utility over time, not a failure of rationality. The model makes a person “potentially addicted” to a good precisely when higher past consumption raises the marginal utility of present consumption enough that present and future consumption become complements (“adjacent complementarity”); strong complementarity of this kind makes the steady-state consumption level unstable, so that small differences in where a person starts can cumulate into either runaway addictive consumption or abstention. From this single mechanism the paper derives several further implications: addictive consumption responds more to permanent than to temporary price changes, severe addictions end only through abrupt (“cold turkey”) cessation rather than gradual reduction, repeated binge-and-abstain cycles can emerge from rational maximization when two capital stocks with different depreciation rates are present, and anxiety-raising life events (divorce, job loss, combat stress) can permanently “hook” a person who would otherwise never have become addicted. The authors support the forward-looking (non-myopic) reading of their model with evidence that smoking fell sharply, including among relatively impatient teenagers, in the decade after the 1964 Surgeon General’s report. The analysis is a theoretical model with illustrative applications to known empirical patterns (cigarette and alcohol price elasticities, bimodal consumption distributions) rather than a new structural estimation of the model itself.

Gary S. Becker | Macro Paper Warehouse

A Theory of Rational Addiction