Why might individuals behave in ways that are known to have dire consequences for their long-term health and happiness?

Behavioral economics provides a framework to understand when and how people make mistakes. It’s a new field that blends psychology and economics and can provide valuable insights as to why individuals do not behave in their own best interests (Khaneman, 2011).

Departure from the rational choice model

Behavioral economics emerged against the backdrop of the traditional economic approach known as the rational choice model.

Within the rational choice model, the rational person is assumed to correctly weigh costs and benefits and calculate the best choices for himself. The rational person is expected to know his tastes (both present and future), and never flip-flops between two contradictory desires. He has perfect self-control and can restrain impulses that may prevent him from achieving his long-term goals.

Traditional economics use these assumptions to predict real human behavior. The standard policy advice that stems from this way of thinking is to give people as many choices as possible, and let them choose the one they like best (with minimum government action).


The rational person correctly weighs costs and benefits and calculates the best choices. Photo: Wikimedia Commons

In contrast, behavioral economics shows that actual human beings do not act that way. People have a great deal of trouble exercising self-control. They are profoundly influenced by context, and often have little idea of what they will like next year or even tomorrow.

Behavioral economists attempt to understand these departures and– much like a cognitive therapist–attempt to guide individuals toward more healthy behaviors by correcting cognitive errors (Lowenstein, and Haisley, 2008). They also suggests ways that policymakers might restructure environments to facilitate better choices (Sunstein, 2014).

Delay discounting and the divided self

A key concept in behavioral economics is that of how delayed rewards are discounted by individuals. Delay discounting refers to the reduction in the present value of a reward when its delivery is delayed. In the field, we use the term intertemporal decisions to describe decisions that have a time dimension, meaning that they involve tradeoffs between costs and benefits occurring at different times. Such choices pervade our lives, from daily decisions to ones that can have life-long consequences, such as saving for retirement, education, and marriage.

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The divided self. Photo: Alan Lyme

The concept of choice over time provides a valuable organizing principle to explain the human taste for instant gratification. The main problem with most addictive behaviors is that the costs occur in the future, whereas the pleasures from them occur in the present.

It is hardly irrational to value immediate rewards over delayed ones. In the same way that preferences for food items differ across people, so do preferences for time. Some people are much more focused on short-term gains than others. They think of their future selves in the same way that they think of strangers, so they are not too concerned about their future well-being. For example, one person decides to go to college to obtain a medical degree and another person aims for more immediate gains by attending trade school. Such a person with a consistently high discount rate does not necessarily experience internal conflict  or self-control problems.

However, an individual is often a divided-self with conflicting preferences. That is, at time 1, the person chooses indulgence; at time 2, this person wishes that he had made a different choice. This pattern of preferences is referred to as “present-biased” preferences (Ainslie 2001).

For example, an ice cream cone may seem like a bad idea when considered a few days before it appears at a birthday party. Yet when the occasion for indulgence comes closer in time, the immediate benefit of indulging in ice cream is more salient than the long-term potential for negative effects. In this example, the person’s judgment at the time of action diverges from his calm and reflective judgment.

ice cream smile

Seems like a good idea at the time. Photo: Yongjiet

Similarly, large proportions of people with addictions report being motivated to change their behavior and do indeed seek treatment, but later voluntarily drop out of treatment or relapse despite successfully completing treatment (MacKilop et al., 2013).

We know that people with substance use disorders (not to mention people with ADHD and many younger adults) tend to respond impulsively to tempting rewards that are immediately available. Impulsive behavior might facilitate substance use by reducing the weight given to its negative long-term consequences. Among individuals suffering from addiction, valuations of immediate (and short-term) negative value (e.g., withdrawal) are also likely to be weighed more heavily than valuations of long-term negative consequence.

Evidence shows that steep delay discounting (relative inconsideration of future consequences) is a key aspect of addiction, obesity, and a risk factor for relapse (Bickel and Vuchinich, 2000). In the language of public health, a predisposition for extreme temporal discounting could be considered to be a risk factor for substance use disorders.

Using delay discounting in addiction treatment

Promoting consideration of the future consequences of behavior may be important tool for addiction treatment. To counteract shortsighted behavior, addiction treatment can use self-control strategies that either shift some of the future costs to the present or reduce some of the immediate rewards (i.e., changing the values of the choices).

For example, some recovering alcoholics try to stay dry by taking disulfiram (Antabuse), a drug that has the effect of making the user violently ill if one takes a drink. Within a few minutes of ingesting alcohol, the user will experience severe nausea and vomiting.


Shahram Heshmat has a PhD in Managerial Economics from Rensselaer Polytechnic Institute (RPI). He is a retired professor from the University of Illinois Springfield (UIS) and currently teaches as adjunct at UIS. He specializes in Health Economics of Addiction & Obesity. His recent book is titled (2011): Eating Behavior and Obesity: Behavioral Economics Strategies for Health Professionals. New York, NY: Springer.


Recommended Resources

“Instant Gratification as a Way Out of Addiction? Yes!” (6/4/14) Fascinating report on The Fix that suggests that improving working memory can also improve a person’s ability to think about the future

How to make the future better than the present (5/25/14) Neuroscientist in recovery Marc Lewis on fiddling with the parameters of the immediate and long-term rewards of not using drugs as a self-control or addiction treatment strategy (his whole blog focuses heavily on delay discounting)

Motivationalincentives.org Resource by the Mid-Atlantic Node of the Clinical Trials Network on motivational incentives (often called “contingency management”) programs in addiction treatment, the use of positive reinforcement to promote behavior change



Ainslie, G. (2001). “Breakdown of Will.” Cambridge University Press.

Bickel,W.K., Vuchinich, R.E. (2000), Reframing Health Behavior Change with Behavioral Economics.Lawrence Erlbaum Associates, New Jersey.

Bickel W. K., Jarmolowicz D. P., Mueller E. T., Koffarnus M. N., Gatchalian K. M. (2012). Excessive discounting of delayed reinforcers as a trans-disease process contributing to addiction and other disease-related vulnerabilities: emerging evidence. Pharmacol. Ther. 134, 287–297.

Kahneman Daniel (2011) Thinking, Fast and Slow, Farrar, Straus and Giroux

Loewenstein, George; Haisley, Emily (2008) “The economist as therapist: The methodological ramifications of “light” paternalism”, in Andrew Caplin.

MacKillop, J., Amlung, M.T., Murphy, C.M., Acker, J. & Ray, L.A., (2013). A Behavioral Economic Approach to Health Behavior. In: R. DiClemente, L.F. Salazar, and R.A. Crosby (Eds.) Theory and Practice for a New Public Health (pp131-162). Jones and Bartlett Publishers.

Sunstein, CR (2014) Why Nudge? Yale University Press.