WP 2018-07 Addiction and Intertemporal Risk Attitudes

Posted On December 5, 2018
Categories Working Papers, WP 2018
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VIDEO: Atemporal Risk Preference Task Instructions
VIDEO: Time Preference Task Instructions
VIDEO: Intertemporal Risk Preference Task Instructions

AUTHORS: Glenn W. Harrison, Andre Hofmeyr, Harold Kincaid, Don Ross and J. Todd Swarthout

ABSTRACT: Addictions are typically characterised by cycles of abstinence and relapse over many years, with a variety of resolution states. Economic models of addiction assume intertemporal dependencies in the consumption of addictive goods, thereby incorporating attitudes to risk over time in explanations of addictive behaviour. We are the first to study the intertemporal risk attitudes of addicts. Focussing on smoking behaviour, we compare experimentally elicited risk preferences of addicts, former addicts, and controls. Contrary to an assumption taken up in standard economic models of addiction, smokers do not exhibit intertemporal risk seeking behaviour. Instead, our sample is characterised by high levels of intertemporal risk aversion which varies by smoking intensity and smoking severity in men, but not in women. Our results are the first to demonstrate the role that intertemporal risk attitudes, together with atemporal risk attitudes and discounting behaviour, play in the onset and persistence of addiction.