The welfare implications of addictive substances: A longitudinal study of life satisfaction of drug users

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Highlights

  • We study the dynamics of life satisfaction of substance users in Australia.

  • A drop in life satisfaction precedes the use of street drugs.

  • Lower current life satisfaction relates to alcohol, cannabis and street drug (ab)use.

  • A drop in life satisfaction follows the use of street drugs for 6 months to a year.

  • Results are less consistent with the rational addiction model.

Abstract

This paper provides an empirical test of the rational addiction model, used in economics to model individuals’ consumption of addictive substances, versus the utility misprediction model, used in psychology to explain the discrepancy between people’s decision and their subsequent experiences. By exploiting a unique data set of disadvantaged Australians, we provide longitudinal evidence that a drop in life satisfaction tends to precede the use of illegal/street drugs. We also find that the abuse of alcohol, the daily use of cannabis and the weekly use of illegal/street drugs in the past 6 months relate to lower current levels of life satisfaction. This provides empirical support for the utility misprediction model. Further, we find that the decrease in life satisfaction following the consumption of illegal/street drugs persists 6 months to a year after use. In contrast, the consumption of cigarettes is unrelated to life satisfaction in the close past or the near future. Our results, though only illustrative, suggest that measures of individual’s subjective wellbeing should be examined together with data on revealed preferences when testing models of rational decision-making.

Introduction

Many writings in the economics literature assume that the utility derived from consuming addictive substances is increasing, but at a decreasing rate (see, e.g., Becker and Murphy, 1988; Grossman, 1993; Grossman and Chaloupka, 1998). These studies also assume that people are fully aware of this information, and they use it to choose the best consumption path in order to maximize their lifetime utility subject to their lifetime budget. By contrast, the psychology literature argues that human beings regularly make prediction errors about their future hedonic experiences from such consumption. This is the idea that the experienced utility, which is the hedonic experience derived from the consumption of addictive substances that are potentially harmful to the individual consuming them, is in fact always decreasing. Yet, because of human’s inability to accurately forecast their hedonic experiences (Gilbert and Wilson, 2000; Wilson and Gilbert, 2005), decision utility (or “wantability”), which informs choices and is more familiar to economists, appears (ex-ante) to be increasing even for goods that have negative consequences on their experiences ex post (see, e.g., Kahneman et al., 1997; Kahneman and Thaler, 2006). Such an apparent divide between two social-sciences disciplines is scientifically unattractive.

Our paper focuses on the consumption of a broad set of potentially harmful addictive substances – tobacco, alcohol, cannabis, and illegal/street drugs (such as heroin and cocaine) – and empirically contributes to the debate on the economic model of rational addiction and the psychology model of utility misprediction. Using a unique dataset of disadvantaged individuals with high rates of substance use, we present econometric evidence consistent with the psychology literature on utility misprediction of addictive substances. Specifically, alcohol abuse, the daily use of cannabis and the weekly use of illegal/street drugs in the past 6 months are related to a significant drop in current subjective wellbeing (SWB). This drop in SWB in the short term provides support for the utility misprediction model, which predicts a decrease in individuals’ SWB following the decision to consume addictive substances.1

Section snippets

Background

One of the most influential economic theories modelling the consumption of addictive substances is the theory of rational addiction (RA) by Becker and Murphy (1988). At its core, the RA theory argues that addictions are “rational” behaviours in that addicts have stable preferences and make utility-maximising decisions about whether or not to consume an addictive good, and they are capable of taking into account the future consequences of current consumption. It assumes that individuals choose

Data

Our data comes from the Journeys Home (JH) survey, which is a longitudinal dataset with information on a sample of income support recipients who are either homeless or at-risk of homelessness in Australia (Wooden et al., 2012). Standard datasets are not well suited to investigating the relationship between substance use and life satisfaction. There are too few substance users in general household surveys; and datasets which only include present (or past) substance users fail to represent other

Results

We begin our analysis by investigating the persistence in the consumption of our selected addictive substances. We present transitional matrices for each substance between periods t and t + 1 in Table 2. The raw data suggests that smoking tobacco daily is the most persistent behaviour under study: 92% of individuals who reported to smoke daily in period t continued to smoke daily in period t + 1. Smoking daily is also the addictive behaviour most frequently picked up whether again or for the

Discussion

In the results discussed so far, we made a number of choices regarding the outcome variable, the substance use variables, the specification, the other control variables and the sample. These choices are extensively tested below and the results of these robustness checks demonstrate the robustness of our results.

One potential concern is that the use of an evaluative measure of wellbeing such as life satisfaction may not be the best representation of individuals’ experienced utility, especially

Conclusions

Economists have, over the years, built up a huge arsenal of empirical support for the notion that individuals have stable preferences and make utility-maximizing decisions about whether or not to consume addictive substances. Perhaps surprisingly, and likely due to economists’ mistrust of what people say, as opposed to what people do, relatively little research has been done to test whether or not measures of individuals’ experienced utility improve, as would be predicted by the rational

Acknowledgements

This paper uses unit record data from Journeys Home: Longitudinal Study of Factors Affecting Housing Stability (Journeys Home). The study was initiated and is funded by the Australian Government Department of Social Services (DSS). The Department of Employment has provided information for use in Journeys Home and it is managed by the Melbourne Institute of Applied Economic and Social Research (Melbourne Institute). The findings and views reported in this paper, however, are those of the authors

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