Bad Habits and Endogenous Decision Points

Peter Landry
2015 Social Science Research Network  
This paper introduces a theory of bad habits (namely, addiction) based on endogenous "decision points" -i.e. the times a recurring decision is faced. Cravings are decision points that force an individual to consider consumption while inflicting an opportunity cost. Consumption provides a temporary break from unwanted cravings, which is the incentive that sustains addiction. Habit strength is jointly characterized by the frequency and the per-occasion level of consumption, matching evidence
more » ... ressed by prevailing models. Incorporating random external cues as decision points, routines become regimented as addiction develops; light users are most responsive to cues, while addicts are comparatively immune. While cues are generally associated with higher consumption frequencies, the model also shows how cues can deter consumption. In fact, "overexposure" can fully desensitize the agent in that cue-induced consumption levels fall to zero. (JEL D01, D03, D11, I12) * Philipp Sadowski and Peter Arcidiacono provided excellent guidance at different stages of this project. I also thank Attila Ambrus, Jonas Arias, Michael Dalton, Joe Hotz, Rachel Kranton, Mehmet Ozsoy, and Curtis Taylor for helpful feedback. Word count: 14,443.
doi:10.2139/ssrn.2732649 fatcat:4ugvsrafbjannnud2y6zn5fkkm