Bad Habits and Endogenous Decision Points

58 Pages Posted: 16 Feb 2016

See all articles by Peter Landry

Peter Landry

University of Toronto - Rotman School of Management

Date Written: February 22, 2015

Abstract

I present a theoretical model of addiction in which cravings are costly distractions that force the individual to “think about” the associated consumption decision. By allowing choices to influence the frequency of future cravings, the model emphasizes new incentives and disincentives; namely, consumption provides a temporary break from these so-called “decision points,” but increases their long-run frequency. Matching evidence unaddressed by prevailing theories, raising present consumption reduces near-term future demand by delaying the next consumption occasion, but leads to both higher frequencies and higher per-occasion levels of consumption in the long-run. Incorporating random external cues (modeled as decision points) into the cravings model, consumption becomes more predictable and less cue-sensitive as habits strengthen. In addition to its distinct predictions for behavior, the model offers new implications for policies that restrict external cues, for the use of “counter-cues” in deterring addiction, and for cravings-focused approaches to self-treatment. A method to elicit users’ “natural” decision points is also proposed, which carries unique and testable implications regarding the time-pattern of precommitment.

JEL Classification: D11

Suggested Citation

Landry, Peter, Bad Habits and Endogenous Decision Points (February 22, 2015). Rotman School of Management Working Paper No. 2732649, Available at SSRN: https://ssrn.com/abstract=2732649 or http://dx.doi.org/10.2139/ssrn.2732649

Peter Landry (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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