Myopia and Addictive Behaviour
Athanasios Orphanides () and
Economic Journal, 1998, vol. 108, issue 446, 75-91
The authors present a theory of additive behavior that can account for addicts' apparent disregard for the future consequences of their current actions. The discounting of future utility is increasing in past consumption, indicating increasingly myopic behavior as consumption increases. The intertemporal complementarity generated by the endogenous discounting produces multiple steady states that can account for the simultaneous existence of myopic addicts and nonmyopic nonaddicts within a time consistent expected utility framework. The theory also accounts for the probabilistic incidence of addiction and successful rehabilitation and the possibility of recurrence.
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