Why train the elephant?The problem of excessive future discounting and addictions

Elephant in chargeIf given total control, the “elephant” side makes choices detrimental to future success and happiness.Long-termPatientPlannerImpartial spectatorDeliberative Cold state Short-termImpulsive DoerPassionsAffective/VisceralHot state

Problems with an untrained elephant…Decisions dominated by the short-term, impulsive self tend to reduce future happiness and success due to:Excessive future discountingFinding negative addictionsAvoiding positive addictions

Problems with excessive future discountingFuture discounting The rate at which you are willing to trade immediate experience for future experience.

In the future, I’m paying 14% interest on an asset with disappearing value.Today, I can drive away in a new car with nothing down!

Excessive future discountingThe rate at which we are willing to trade current experience for future experience reflects our rate of future discounting.In the future, I will pay $150 in accumulated interest/penaltiesToday I can spend $100 borrowed on my credit card

Future discountingIf you were in a mall and wanted to buy something, how much would you be willing to pay for $100 right now?Next month $95 owed.ANext month $99 owed.Today $100 borrowedBNext month $100 owed.CNext month $101 owed.DNext month $102 owed.EWhere will you change from saying “yes” to the saying “no”?Next month $105 owed.

Future discounting in other areasDecisions by the elephant tend ignore future consequences. Short-termImpulsive DoerPassionsAffective/VisceralHot state

Future discounting in eatingHealthy?Unhealthy?Moderate?Excessive?

Future discounting in drinkingNone?Moderate?Excess?

Future discounting in educationGraduate? Drop out?

Future discounting in sexAbstain? Monogamy?Serial monogamy? Risky?

Future discounting in exerciseNone? Rare? Regular?

Excessive future discountingThe elephant-side may make “fun” choices, but you could end up broke, obese, ignorant, hung over, diseased, and dying!Short-termImpulsive DoerPassionsAffective/VisceralHot state

Future discounting and success in children“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.” http://www.youtube.com/watch?v=M0yhHKWUa0gMischel, W. (Columbia), Shoda, Y. (Columbia), Rodriguez, M. (Columbia), 1989, Delay of gratification in children. Science, 244, 933-938.

Time horizon and wealth buildingIn 1998 about 5,000 people were asked:“In planning your saving and spending, which of the following time periods is most important to you, the next few months, the next year, the next few years, the next 5-10 years, or longer than 10 years?”Comparing people with the same starting wealth, did those with longer time horizons accumulate more wealth in the following 8 years?

Wealth growth and time horizonComparing with the wealth growth of other people with the same starting wealth:

Other research finds:Planning ahead->wealth“Why do similar households end up with very different levels of wealth?”“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.”Ameriks, J., Caplin, A. (NYU), Leahy, J. (NYU). 2003. Wealth accumulation and the propensity to plan. Quarterly Journal of Economics, 118(3), 1007-1047.

Problems with an untrained elephant…Decisions dominated by the short-term, impulsive self tend to reduce future happiness and success due to:Excessive future discountingFinding negative addictionsAvoiding positive addictions

Finding negative addictionsThe elephant is experiential. Consequently, the elephant side craves experiential variety. Short-termImpulsive DoerPassionsAffective/VisceralHot state

Variety enhances experiential utilityVariety is important because “diminishing marginal utility” changes preferences. When enjoyment drops, we switch to another choice.

But, unlimited experimentation is risky due to negative addiction “traps”Addiction alters the ability of the rider to control future choices.The elephant gradually loses ability to experience other types of enjoyment, and focuses exclusively on the addiction.The rider “knows” that meth generates a high (and has terrible future consequences).Although the elephant doesn’t care about the future, it hasn’t experienced the effects, so it isn’t tempted.

Negative addictions as a path dependent preferenceA negative addiction is initially pleasurable gradually requires more consumption to reach the same level of satisfactionlowers satisfaction from other items (Anhedonia)creates future harm

initially pleasurable

gradually requires more consumption to reach the same level of satisfaction

lowers satisfaction from other items (Anhedonia)

creates future harm

AnhedoniaThe inability to experience pleasure from normally pleasurable life eventsCan result from the use of artificial dopamine stimulants like cocaine or amphetamines (negative addictions)

The negative addiction trapHow does a negative addiction affectFuture Choices?Future Satisfaction?The Future Brain?Work in groups of 2-5 people. After the video, discuss and have one person write down your thoughtsAddiction.wmvhttp://www.hbo.com/addiction/thefilm/centerpiece/616_segment_5.html

“Rationality” inside a negative addiction“[previous research shows] people who discount the future heavily are more likely to become addicted. 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.”Becker, G. (Chicago) & Mulligan, C. (Chicago) , 1997, The endogenous determination of time preference.Quarterly Journal of Economics, 113, p.744

“Rationality” inside a negative addictionWe could work through the mathematics of the model from Nobel prize winning economist Gary Becker…but, instead, let’s try…Becker, G. (Chicago) & Mulligan, C. (Chicago) , 1997, The endogenous determination of time preference.Quarterly Journal of Economics, 113, p.744

Translating Gary Becker using Jeff SpicoliLook, it’s not like he is giving up a future career as a brain surgeon or something.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. So he isn’t giving up that much more by continuing to diminish his (already limited) future prospects.

Rationality inside a negative addictionThe initial meth user may be giving up a lot of future opportunities for using.After continued use, she may not be giving up as many future opportunities to keep using.

Path dependent preference: negative addictionA low concern for the futureaddictive consumption (diminishes future options)Diminished future options means additional loss from further consumption is lessNon addictive consumption ↓ rewardAnhedonia↑

Applying concepts to practiceAn Interview with Kathleen T. Brady, M.D., Ph.D., Professor and Director of the Clinical Neuroscience Division at the Medical University of South Carolina. Anhedonia and early interventionhttp://www.hbo.com/addiction/thefilm/supplemental/621_kathleen_brady.htmlFrom 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)

Negative addictions and the paradox of consumption varietyUnlimited consumption experimenting risks negative addiction.Negative addiction leads to exclusive focus on the addictive item.Unlimited consumption variety for immediate experienceExtreme focus on addiction with poor life experiencesNegative addiction

Problems with an untrained elephant…Decisions dominated by the short-term, impulsive self, tend to reduce future happiness and success due to:Excessive future discountingFinding negative addictionsAvoiding positive addictions

A negative addiction is initially pleasurable gradually requires more consumption to reach the same level of satisfactionlowers satisfaction from other items (Anhedonia)creates future harmA positive addiction is initially not very enjoyablegradually becomes more enjoyable with experiencecreates future benefits

initially not very enjoyable

gradually becomes more enjoyable with experience

creates future benefits

Discussion questionCan you think of things that are Good for you (or are at least not harmful)May not be initially enjoyable Gradually become more enjoyable with continued experience?Work in groups of 2-5 people, discuss and have one person write down your ideas

Potential positive addictionsEducation in a particular field of studyExerciseReligious practiceReading complex novels or non-fictionWatching opera, ballet, football, equestrian, basketball Playing a musical instrument or a sport

Consumption capital and positive addictionsExperience leads to greater understanding, appreciation, and enjoyment. This accumulated experience resulting in greater enjoyment is called “consumption capital”Sing, o muse of the pernicious anger of Achilles…

Path dependent preference: positive addictionsLow current utility but with future benefits Practice increases enjoyment of future consumptionIncreased current utility leads to more practiceConsumption Capital ↑External Benefits ↑

Planned and unplanned focusUnintentional focusIgnoring long-term outcomesNegative addictionsIncreasing focus on addictive substanceDecreasing opportunitiesIntentional focusPlanning for long-term outcomesPositive addictionsIncreasing focus on long-term behaviorsIncreasing opportunities

Planning for long-term outcomes

Positive addictions

Increasing focus on long-term behaviors

Increasing opportunities

If you feed it, it will growEarly decisions are like yeast (a.k.a. “path dependent preferences”)An early decision for short-term, visceral choice can reduce future options and lead to preference for more short-term, visceral choicesAn early decision for long-term goal achievement can lead to more opportunities for goal achievement

Overcoming misleading experienceIn the case of both negative and positive addictions, initial experience is misleading.Negative addictions provide initial positive feedbackPositive addictions provide initial negative feedback

Negative addictions provide initial positive feedback

Positive addictions provide initial negative feedback

Overcoming misleading experienceBecause of this false experience feedback, ideal outcomes require externally influencing the choice environment.By YouBy The LawBy Your MotherElephant training by environmental controlCriminalizing or subsidizing choicesTraining, guilt, nagging, etc.

Slides by: Russell James III, J.D., Ph.D.Asst. Professor, Department of Housing & Consumer Economics, University of GeorgiaPlease use these slides! If you think you might use anything here in a classroom, please CLICK HEREto let me know. Thanks!The outline for this behavioral economicsseries is at rjames.myweb.uga.edu/outline.htm