The theory of Rational Addiction

Abstract

The Theory of Rational Addictions, by Gary Becker & Kevin Murphy (1988), was a rational choice model that became a standard tool for economists modeling addictive behavior. The approach differs from other theories of addiction by modeling addictive behavior as the gradual implementation of a rational, forward-looking plan, where consumption at any point in time is partly motivated by the immediate payoff of consumption and partly by the effects this consumption has on the individual in the future. This makes addictive behavior a subset of rational behavior, requiring no more specific government policies or attention than any other consumption choice. Later work by economists extended the theory in different ways, allowing it to match an increasing number of consumption patterns, and searched for ways to test the forward-looking assumption in different types of market data. While the work was successful as a contribution to rational choice theory, with possible statistical applications, there are several reasons to dismiss its usefulness as an explanation of real-world addictive behavior and its ability to assess the welfare effects of addictions.

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