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Addiction & Future Discounting

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

  • Very relevant !!! A very clear, simple, practical and useful presentation.And very well put together too.Well done and thank you.
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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 />

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