Rational addiction is the hypothesis that addictions (to heroin, tobacco, television, etc.) can be usefully modeled as specific kinds of rational, forward-looking, optimal consumption plans. The canonical theory is due to Kevin M. Murphy and Nobel Prize Winner Gary S. Becker. 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, the theoretical approach has become the standard approach to understanding addiction in economics, 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.
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) show that the model's prediction that announced future tax increases should decrease current smoking is consistent with the evidence. Auld and Grootendorst (2004) show, however, that the empirical version of the rational addiction model tends to produce spurious evidence of addictiveness when aggregate data are used.
Later extensions by other authors allow for uncertainty and a form of regret (you make a "rational bet" with positive expected return, but you're unlucky), cyclical consumption (interpreted as bingeing), chaotic consumption (fully deterministic but highly irregular consumption patterns strongly influenced by initial conditions), endogenous time preferences (where you know and rationally take into account how the drugs make you care less about your future), and quasi-hyperbolic discounting (the way the consumer takes the future into account makes him inconsistent over time - laying plans that he later deviates from). This latter theory is an example of an extension trying to shift the theory away from its laissez-faire and drug-liberal implications for policy. The fully rational "rational addiction models" are widely held to have the policy implication that drug users - even if they are unhappy on drugs - would be even more unhappy and worse off if they were forced off drugs. The government's policy - in this view - should be restricted to ensuring that people are well-informed and don't impose externalities on others (e.g., second-hand smoke).
Criticism of rational addiction theories have emerged along different lines. One strand of criticism is the already mentioned econometric work. A prominent critic working along different lines is the philosopher Jon Elster who in a series of works has claimed that theories in Becker's framework are conceptually incoherent in their view of preferences, as well as inconsistent with the ambivalence and desire for increased self-regulation that is empirically displayed by many addicts. Economist Ole Rogeberg has used the theories as a case example of what he calls "absurd theories" in economics, and argues that the theories "illustrate 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."
- Becker, G. and K. Murphy (1988) "A theory of rational addiction". Journal of Political Economy, 96, 675-700.
- 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/
- Gruber, J. and B. Koszegi (2001) "Is addiction rational? Theory and evidence". Quarterly Journal of Economics 116: 4 1261-303.
- Auld, M.C. and P. Grootendorst (2004) "An empirical analysis of milk addiction". Journal of Health Economics, 23, 1117-33.
- Orphanides, Athanasios and Zervos, David (1995) "Rational Addiction with Learning and Regret". Journal of Political Economy, 103(4), 739-758.
- Dockner, Enelberg J. and Feichtinger, Gustav (1993) "Cyclical Consumption Patterns and Rational Addiction". American Economic Review, 83(1), 256-263.
- Feichtinger, Gustav, Hommes, Cars H. and Milik, Alexandra(1997) "Chaotic Consumption Patterns in a Simple 2-D Addiction Model". Economic Theory, 10(1), 147-173.
- Orphanides, Athanasios and Zervos, David (1998) "Myopia and Addictive Behavior". Economic Journal, 108(446), 75-91.
- Elster, Jon (1997) "More Than Enough - review of Accounting for Tastes". University of Chicago Law Review, 64, 749-764.
- Elster, Jon (2000) Alchemies of the Mind: Rationality and the Emotions. Cambridge University Press.
- Rogeberg, Ole (2004) "Taking Absurd Theories Seriously: Economics and the Case of Rational Addiction Theories". Philosophy of Science, 71, 263-285.