Economic modeling of the rational consumption of addictive substances

This article gives an overview of the way economists model the decision to consume addictive commodities and reviews some of the relevant literature testing aspects of the model. It aims to answer the question of how it is that economists can speak of the consumption of addictive harmful commodities as a rational decision. Health economics treats the consumption of commodities that have beneficial (or harmful) effects on health, and therefore on utility or well-being, as intertemporal decisions with regard to investment decisions. In investment in health, the payoff to an action comes appreciably later than the action itself. The decision to consume harmful, and even addictive, commodities fits into the investment in health framework, with the benefit comes now, in the form of the pleasure derived from consuming them, and the costs, in terms of damage to the individual's health, comes later. The value that a person places on the future vs. the present is called time preference or subjective rate of time discounting, which represents the weight he places on the future relative to the present when he makes decisions that have future consequences. The more they discount the future, the more myopic they are and the more likely to undertake risky behaviors, including smoking or using drugs such as amphetamines or heroin, as well as dropping out of school or taking on high risk jobs.