Undercover Economist

Users’ Guide

I feel that it is time to share a secret. When I left on my holiday just over a week ago, I was fighting a battle with a deep-rooted addiction. I feel able to admit this, since over the course of my holiday I was able to go through cold turkey, conquer the addiction, and face the world clean.

It’s decaffeinated coffee for me from now on. Addiction – even to something as benign as filter coffee – is an unlikely topic for an economist to tackle, because most economic theory is predicated on rational behaviour, and addiction seems to be quintessentially irrational.

The logical response appeared in 1988. A Theory of Rational Addiction was published by Kevin M. Murphy and Nobel laureate Gary Becker, and has defined economists’ approaches to addiction ever since. The theory is easy to state: it is that addicts choose their poison despite knowing that it is habit-forming and dangerous, and they do so because they expect the highs to outweigh the lows.

Even other economists are sceptical. “They don’t know what they’re talking about,” opined Thomas Schelling when I met him shortly after he, too, was awarded the Nobel prize in economics…

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