In economics, we define rationality as ‘acting in self-interest in order to maximise utility’. Generally, we can class actions as being rational or irrational. A rational behaviour, for example, may be an individual retiring early rather than remaining at the company and earning a paycheck if they feel the utility (happiness or satisfaction) gained from retiring early exceeds that of the paycheck.
The concept of rationality begs the question of whether addiction is rational. Traditionally and intuitively, the vast majority of us will tend to think of addictive behaviour as overindulgent, compulsive, ultimately destructive, and hence, irrational. Conversely, there exists a theory in behavioural economics - rational addiction (initially proposed by Kevin Murphy and Gary Becker) - which hypothesises that addictions can be usefully modelled as specific types of rational, forward-looking, optimal consumption plans. In this context, ‘forward-looking consumption’ refers to the assumption that most people prefer to keep their consumption fairly steady from year to year.
As an economic theory, this theoretical approach of viewing addiction as rational is controversial and has been subject to much criticism from prominent economists and philosophers such as Jon Elster and Ole Rogeberg. However, it has become “one of the standard models in the literature on addictive behaviour” in economics.
We can define addiction as ‘a causal effect of past consumption on current consumption’. The original theory models addictions as the implementation of a forward-looking consumption plan made based on full certainty and perfect information (all consumers and producers having complete and instantaneous knowledge of all market prices, their own utility, and own cost functions), where the individual’s aim is maximising utility. The original model itself can arguably be disputed in real-world cases of addiction - for example, perfect information is a strong assumption to make given that in reality, consumers may not have complete awareness of the detrimental health effects of an alcohol addiction (a case of asymmetric information). Given the assumption, however, the addict is fully aware of how the good will affect them, and the key reason they continue consuming more is that this is the pattern of consumption that maximises their discounted utility (‘the utility of some future event as perceived at the present time as opposed to at the time of its occurrence’ - in essence, the concept that people tend to value rewards and benefits more highly in the present than in the future). The addict is aware that consuming the addictive good will alter their preferences, changing both their future baseline level of utility and the marginal utility of consuming the addictive good in the future.
There is a notable amount of evidence in favour of the theory of rational addiction, particularly from econometric literature. An example of this is a study conducted by Jonathan Gruber and Botond Köszegi, which demonstrates that the original model’s prediction that announced future tax increases should decrease current smoking is consistent with the evidence. This is backed by evidence from countries such as Ireland and Scotland. In Scotland, for example, a comprehensive smoking ban was implemented in March 2006, and research found a decrease in smoking prevalence in restaurants (from 36% to 30%) and bars (from 35% to 30%) in the months before the ban was actually implemented. However, Christopher Auld and Paul Grootendorst show that the empirical version of the rational addiction model usually leads to spurious evidence of addictiveness when aggregate data is used.
In terms of criticism, research which attempts to apply the rational addiction model to surveys of drug users have found that the model does not completely explain addictive behaviour. Arguably, the rational addiction model oversimplifies the complexities of addiction, failing to acknowledge factors such as genetic predispositions that play significant roles in addiction. Critics such as Jon Elster claimed that theories in Becker’s original framework is conceptually incoherent and does not take into account the ambivalence and want for increased self-regulation that is shown by the majority of addicts. Ole Rogeberg stated that this theory of rational addiction “illustrates how absurd choice theories in economics get taken seriously as possibly true explanations and tools for welfare analysis despite being poorly interpreted, empirically unfalsifiable, and based on wildly inaccurate assumptions selectively justified by ad hoc stories,” - not a glowing review on any account.
On balance, I believe that while the rational addiction model provides an interesting framework for understanding addictive behaviour from an economic viewpoint, its applications to real-world situations are diminished by its failure to take into account the complexities of addiction and the sheer number of factors that influence addicts’ decisions.
Ritisha Baidyaray
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