Beneficial and Harmful Addictions: Two sides of the same coin

Abstract

In this paper we obtain an isomorphism between harmful and beneficial addictions in a discrete-time binary choice context. The equivalence thus established allows us to study both phenomena (harmful and beneficial addictions) as two sides of the same coin. Besides the theoretical insight it provides, this dualism is also particularly useful because it readily allows for the translation of the results obtained in the domain of harmful addictions to the domain of beneficial addictions. Once the dualism is established, we analyze addictions under both timeconsistent and time-inconsistent preferences.

Keywords

• addiction
• self-control
• negative internalities
• habit formation
• hyperbolic discounting
• naïveté