0
Dr. Russell James III, Texas Tech University<br />Why train the elephant?<br />The problem of excessive future discounting...
Elephant in charge<br />If given total control, the “elephant” side makes choices  detrimental to future success and happi...
Problems with an untrained elephant…<br />Decisions dominated by the short-term, impulsive self tend to reduce future happ...
Problems with excessive future discounting<br />Future discounting<br /> The rate at which you are willing to trade immedi...
In the future, I’m paying 14% interest on an asset with disappearing value.<br />Today, I can drive away in a new car with...
Excessive future discounting<br />The rate at which we are willing to trade current experience for future experience refle...
Future discounting<br />If you were in a mall and wanted to buy something, how much would you be willing to pay for $100 r...
Future discounting in other areas<br />Decisions by the elephant tend ignore future consequences. <br />Short-term<br />Im...
Future discounting in eating<br />Healthy?<br />Unhealthy?<br />Moderate?<br />Excessive?<br />
Future discounting in drinking<br />None?<br />Moderate?<br />Excess?<br />
Future discounting in education<br />Graduate? <br />Drop out?<br />
Future discounting in sex<br />Abstain? <br />Monogamy?<br />Serial monogamy? <br />Risky?<br />
Future discounting in exercise<br />None? Rare? Regular?<br />
Excessive future discounting<br />The elephant-side may make “fun” choices, but you could end up broke, obese, ignorant, h...
Future discounting and success in children<br />“Those 4-year-old children who delayed gratification longer in certain lab...
Time horizon and wealth building<br />In 1998 about 5,000 people were asked:<br />“In planning your saving and spending, w...
Wealth growth and time horizon<br />Comparing with the wealth growth of other people with the same starting wealth:<br />
Other research finds:Planning ahead->wealth<br />“Why do similar households <br />end up with very different <br />levels ...
Problems with an untrained elephant…<br />Decisions dominated by the short-term, impulsive self tend to reduce future happ...
Finding negative addictions<br />The elephant is experiential.  Consequently, the elephant side craves experiential variet...
Variety enhances experiential utility<br />Variety is important because “diminishing marginal utility” changes preferences...
But, unlimited experimentation is risky due to negative addiction “traps”<br />Addiction alters the ability of the rider t...
Negative addictions as a path dependent preference<br />A negative addiction is <br /><ul><li>initially pleasurable
gradually requires more consumption to reach the same level of satisfaction
lowers satisfaction from other items  (Anhedonia)
creates future harm</li></li></ul><li>Anhedonia<br />The inability to experience pleasure from normally pleasurable life e...
The negative addiction trap<br />How does a negative addiction affect<br />Future Choices?<br />Future Satisfaction?<br />...
“Rationality” inside a negative addiction<br />“[previous research shows] people who discount the future heavily are more ...
“Rationality” inside a negative addiction<br />We could work through the mathematics of the model from Nobel prize winning...
Translating Gary Becker using Jeff Spicoli<br />Look, it’s not like he is giving up a future career as a brain surgeon or ...
Rationality inside a negative addiction<br />The initial meth user may be giving up a lot of future opportunities for usin...
Path dependent preference: negative addiction<br />A low concern for the future<br />addictive consumption (diminishes fut...
Applying concepts to practice<br />An Interview with Kathleen T. Brady, M.D., Ph.D., Professor and Director of the Clinica...
Negative addictions and the paradox of consumption variety<br />Unlimited consumption experimenting risks negative addicti...
Problems with an untrained elephant…<br />Decisions dominated by the short-term, impulsive self, tend to reduce future hap...
A negative addiction is <br />initially pleasurable <br />gradually requires more consumption to reach the same level of s...
gradually becomes more enjoyable with experience
creates future benefits</li></li></ul><li>Discussion question<br />Can you think of things that are <br />Good for you (or...
Potential positive addictions<br />Education in a particular field of study<br />Exercise<br />Religious practice<br />Rea...
Consumption capital and positive addictions<br />Experience leads to greater understanding, appreciation, and enjoyment.  ...
Path dependent preference: positive addictions<br />Low current utility but with future benefits <br />Practice increases ...
Planned and unplanned focus<br />Unintentional focus<br />Ignoring long-term outcomes<br />Negative addictions<br />Increa...
Positive addictions
Upcoming SlideShare
Loading in...5
×

Addiction & Future Discounting

1,998

Published on

A review of economic and behavioral economic approaches to excessive future discounting and addiction decisions

1 Comment
5 Likes
Statistics
Notes
  • Very relevant !!! A very clear, simple, practical and useful presentation.And very well put together too.Well done and thank you.
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
No Downloads
Views
Total Views
1,998
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
196
Comments
1
Likes
5
Embeds 0
No embeds

No notes for slide
  • From the Health and Retirement Study, Author’s data analysis
  • Note: comparison group are HRS members who were not asked the question in the 1998 survey. Linear regression on wealth.
  • Picture from faces of meth
  • Transcript of "Addiction & Future Discounting"

    1. 1. Dr. Russell James III, Texas Tech University<br />Why train the elephant?<br />The problem of excessive future discounting and addictions<br />
    2. 2. Elephant in charge<br />If given total control, the “elephant” side makes choices detrimental to future success and happiness.<br />Long-term<br />Patient<br />Planner<br />Impartial spectator<br />Deliberative <br />Cold state <br />Short-term<br />Impulsive <br />Doer<br />Passions<br />Affective/Visceral<br />Hot state <br />
    3. 3. Problems with an untrained elephant…<br />Decisions dominated by the short-term, impulsive self tend to reduce future happiness and success due to:<br />Excessive future discounting<br />Finding negative addictions<br />Avoiding positive addictions<br />
    4. 4. Problems with excessive future discounting<br />Future discounting<br /> The rate at which you are willing to trade immediate experience for future experience.<br />
    5. 5. In the future, I’m paying 14% interest on an asset with disappearing value.<br />Today, I can drive away in a new car with nothing down!<br />
    6. 6. Excessive future discounting<br />The rate at which we are willing to trade current experience for future experience reflects our rate of future discounting.<br />In the future, I will pay $150 in accumulated interest/penalties<br />Today I can spend $100 borrowed on my credit card<br />
    7. 7. Future discounting<br />If you were in a mall and wanted to buy something, how much would you be willing to pay for $100 right now?<br />Next month $95 owed.<br />A<br />Next month $99 owed.<br />Today $100 borrowed<br />B<br />Next month $100 owed.<br />C<br />Next month $101 owed.<br />D<br />Next month $102 owed.<br />E<br />Where will you change from saying “yes” to the saying “no”?<br />Next month $105 owed.<br />
    8. 8. Future discounting in other areas<br />Decisions by the elephant tend ignore future consequences. <br />Short-term<br />Impulsive <br />Doer<br />Passions<br />Affective/<br />Visceral<br />Hot state <br />
    9. 9. Future discounting in eating<br />Healthy?<br />Unhealthy?<br />Moderate?<br />Excessive?<br />
    10. 10. Future discounting in drinking<br />None?<br />Moderate?<br />Excess?<br />
    11. 11. Future discounting in education<br />Graduate? <br />Drop out?<br />
    12. 12. Future discounting in sex<br />Abstain? <br />Monogamy?<br />Serial monogamy? <br />Risky?<br />
    13. 13. Future discounting in exercise<br />None? Rare? Regular?<br />
    14. 14. Excessive future discounting<br />The elephant-side may make “fun” choices, but you could end up broke, obese, ignorant, hung over, diseased, and dying!<br />Short-term<br />Impulsive <br />Doer<br />Passions<br />Affective/Visceral<br />Hot state <br />
    15. 15. Future discounting and success in children<br />“Those 4-year-old children who delayed gratification longer in certain laboratory situations developed into more cognitively and socially competent adolescents, achieving higher scholastic performance and coping better with frustration and stress.” <br />http://www.youtube.com/watch?v=M0yhHKWUa0g<br />Mischel, W. (Columbia), Shoda, Y. (Columbia), Rodriguez, M. (Columbia), 1989, Delay of gratification in children. Science, 244, 933-938.<br />
    16. 16. Time horizon and wealth building<br />In 1998 about 5,000 people were asked:<br />“In planning your saving and spending, which of the following time periods is most important to you, <br />the next few months, <br />the next year, <br />the next few years, <br />the next 5-10 years, <br />or longer than 10 years?”<br />Comparing people with the same starting wealth, did those with longer time horizons accumulate more wealth in the following 8 years?<br />
    17. 17. Wealth growth and time horizon<br />Comparing with the wealth growth of other people with the same starting wealth:<br />
    18. 18. Other research finds:Planning ahead->wealth<br />“Why do similar households <br />end up with very different <br />levels of wealth?”<br />“We use new and unique survey data to assess these differences and to measure each household’s ‘propensity to plan.’ We show that those with a higher such propensity spend more time developing financial plans, and that this shift in planning is associated with increased wealth.”<br />Ameriks, J., Caplin, A. (NYU), Leahy, J. (NYU). 2003. Wealth accumulation and the propensity to plan. Quarterly Journal of Economics, 118(3), 1007-1047.<br />
    19. 19. Problems with an untrained elephant…<br />Decisions dominated by the short-term, impulsive self tend to reduce future happiness and success due to:<br />Excessive future discounting<br />Finding negative addictions<br />Avoiding positive addictions<br />
    20. 20. Finding negative addictions<br />The elephant is experiential. Consequently, the elephant side craves experiential variety. <br />Short-term<br />Impulsive <br />Doer<br />Passions<br />Affective/Visceral<br />Hot state <br />
    21. 21. Variety enhances experiential utility<br />Variety is important because “diminishing marginal utility” changes preferences. When enjoyment drops, we switch to another choice.<br />
    22. 22. But, unlimited experimentation is risky due to negative addiction “traps”<br />Addiction alters the ability of the rider to control future choices.<br />The elephant gradually loses ability to experience other types of enjoyment, and focuses exclusively on the addiction.<br />The rider “knows” that meth generates a high (and has terrible future consequences).<br />Although the elephant doesn’t care about the future, it hasn’t experienced the effects, so it isn’t tempted.<br />
    23. 23. Negative addictions as a path dependent preference<br />A negative addiction is <br /><ul><li>initially pleasurable
    24. 24. gradually requires more consumption to reach the same level of satisfaction
    25. 25. lowers satisfaction from other items (Anhedonia)
    26. 26. creates future harm</li></li></ul><li>Anhedonia<br />The inability to experience pleasure from normally pleasurable life events<br />Can result from the use of artificial dopamine stimulants like cocaine or amphetamines (negative addictions)<br />
    27. 27. The negative addiction trap<br />How does a negative addiction affect<br />Future Choices?<br />Future Satisfaction?<br />The Future Brain?<br />Work in groups of 2-5 people. After the video, discuss and have one person write down your thoughts<br />Addiction.wmv<br />http://www.hbo.com/addiction/thefilm/centerpiece/616_segment_5.html<br />
    28. 28. “Rationality” inside a negative addiction<br />“[previous research shows] people who discount the future heavily are more likely to become addicted. <br />Our result establishes the converse, that harmful addictions induce even rational persons to discount the future more heavily, which may in turn lead them to become more addicted.”<br />Becker, G. (Chicago) & Mulligan, C. (Chicago) , 1997, The endogenous determination of time preference.Quarterly Journal of Economics, 113, p.744<br />
    29. 29. “Rationality” inside a negative addiction<br />We could work through the mathematics of the model from Nobel prize winning economist Gary Becker…<br />but, instead, let’s try…<br />Becker, G. (Chicago) & Mulligan, C. (Chicago) , 1997, The endogenous determination of time preference.Quarterly Journal of Economics, 113, p.744<br />
    30. 30. Translating Gary Becker using Jeff Spicoli<br />Look, it’s not like he is giving up a future career as a brain surgeon or something.<br />Even if he could have done that at one point in his life, that is no longer an option due to the effects of addiction. <br />So he isn’t giving up that much more by continuing to diminish his (already limited) future prospects.<br />
    31. 31. Rationality inside a negative addiction<br />The initial meth user may be giving up a lot of future opportunities for using.<br />After continued use, she may not be giving up as many future opportunities to keep using.<br />
    32. 32. Path dependent preference: negative addiction<br />A low concern for the future<br />addictive consumption (diminishes future options)<br />Diminished future options means additional loss from further consumption is less<br />Non addictive consumption ↓ reward<br />Anhedonia↑<br />
    33. 33. Applying concepts to practice<br />An Interview with Kathleen T. Brady, M.D., Ph.D., Professor and Director of the Clinical Neuroscience Division at the Medical University of South Carolina. <br />Anhedonia and early intervention<br />http://www.hbo.com/addiction/thefilm/supplemental/621_kathleen_brady.html<br />From start of “How Does Addiction Affect the Brain?” until just before start of “What aspects of a person’s life need to be addressed in recovery?” (Ending segment of chapter 1 on the website)<br />
    34. 34. Negative addictions and the paradox of consumption variety<br />Unlimited consumption experimenting risks negative addiction.<br />Negative addiction leads to exclusive focus on the addictive item.<br />Unlimited consumption variety for immediate experience<br />Extreme focus on addiction with poor life experiences<br />Negative addiction<br />
    35. 35. Problems with an untrained elephant…<br />Decisions dominated by the short-term, impulsive self, tend to reduce future happiness and success due to:<br />Excessive future discounting<br />Finding negative addictions<br />Avoiding positive addictions<br />
    36. 36. A negative addiction is <br />initially pleasurable <br />gradually requires more consumption to reach the same level of satisfaction<br />lowers satisfaction from other items (Anhedonia)<br />creates future harm<br />A positive addiction is <br /><ul><li>initially not very enjoyable
    37. 37. gradually becomes more enjoyable with experience
    38. 38. creates future benefits</li></li></ul><li>Discussion question<br />Can you think of things that are <br />Good for you (or are at least not harmful)<br />May not be initially enjoyable <br />Gradually become more enjoyable with continued experience?<br />Work in groups of 2-5 people, discuss and have one person write down your ideas<br />
    39. 39. Potential positive addictions<br />Education in a particular field of study<br />Exercise<br />Religious practice<br />Reading complex novels or non-fiction<br />Watching opera, ballet, football, equestrian, basketball <br />Playing a musical instrument or a sport<br />
    40. 40. Consumption capital and positive addictions<br />Experience leads to greater understanding, appreciation, and enjoyment. This accumulated experience resulting in greater enjoyment is called “consumption capital”<br />Sing, o muse of the pernicious anger of Achilles…<br />
    41. 41. Path dependent preference: positive addictions<br />Low current utility but with future benefits <br />Practice increases enjoyment of future consumption<br />Increased current utility leads to more practice<br />Consumption Capital ↑<br />External <br />Benefits ↑<br />
    42. 42. Planned and unplanned focus<br />Unintentional focus<br />Ignoring long-term outcomes<br />Negative addictions<br />Increasing focus on addictive substance<br />Decreasing opportunities<br />Intentional focus<br /><ul><li>Planning for long-term outcomes
    43. 43. Positive addictions
    44. 44. Increasing focus on long-term behaviors
    45. 45. Increasing opportunities </li></li></ul><li>If you feed it, it will grow<br />Early decisions are like yeast (a.k.a. “path dependent preferences”)<br />An early decision for short-term, visceral choice can reduce future options and lead to preference for more short-term, visceral choices<br />An early decision for long-term goal achievement can lead to more opportunities for goal achievement<br />
    46. 46. Overcoming misleading experience<br />In the case of both negative and positive addictions, initial experience is misleading.<br /><ul><li>Negative addictions provide initial positive feedback
    47. 47. Positive addictions provide initial negative feedback</li></li></ul><li>Overcoming misleading experience<br />Because of this false experience feedback, ideal outcomes require externally influencing the choice environment.<br />By You<br />By The Law<br />By Your Mother<br />Elephant training by environmental control<br />Criminalizing or subsidizing choices<br />Training, guilt, nagging, etc.<br />
    48. 48. Slides by: <br />Russell James III, J.D., Ph.D., CFP®<br />Associate Professor <br />Division of Personal Financial Planning <br />Texas Tech University<br />russell.james@ttu.edu<br />Please use these slides! <br />If you think you might use anything here in a classroom, please CLICK HEREto let me know. Thanks!<br />The outline for this behavioral economics series is at <br />http://www.slideshare.net/rnja8c/outline-for-behavioral-economics-course-component <br />
    1. Gostou de algum slide específico?

      Recortar slides é uma maneira fácil de colecionar informações para acessar mais tarde.

    ×