Does addiction and mental illness dull responses to incentives

I found the chapter in Tullock and McKenzie’s book on token economies in mental hospitals to be most enlightening in regard to addictions and mental illness clouding judgement.

The tokens in a token economy were spending money at the hospital canteen and trips to town and other privileges. They were earned by keeping you and your area clean and helping out with chores at the mental asylum.

The first token economies were for chronic, treatment-resistant psychotic inpatients. In 1977, a major study, still considered a landmark, successfully showed the superiority of a token economy compared to the standard treatments of these type of psychotic inpatients.

Experiments which would now be unethical showed that the occupational choices and labour supply of certified lunatics responded to incentives in the normal, predictable way. For example, tokens were withdrawn for helping clean halls and common areas. The changes in occupational choice and reductions in labour supply was immediate and as predicted by standard economics.

Some patients would steal the tokens for other patients, so the tokens were individually marked. The thefts almost stopped. Crime must pay even for criminally insane inpatients. Kagel reported that:

The results have not varied with any identifiable trait or characteristic of the subjects of the token economy – age, IQ, educational level, length of hospitalization, or type of diagnosis. Most people age out of addiction to drugs or to alcohol.  By age 35, half of patients with active alcoholism or addiction diagnoses during their teens and 20s no longer take drugs or drink:

The average cocaine addiction lasts four years, the average marijuana addiction lasts six years, and the average alcohol addiction is resolved within 15 years. Heroin addictions tend to last as long as alcoholism, but prescription opioid problems, on average, last five years. In these large samples, which are drawn from the general population, only a quarter of people who recover have ever sought assistance in doing so (including via 12-step programs). This actually makes addictions the psychiatric disorder with the highest odds of recovery.

Studies of demand elasticity normally find that consumption of hard drugs is quite sensitive to price. Addicts respond to incentives, in particular, to price rises by cutting back on their drug taking.

At the beginning of this century, the Dutch government controlled the opium market in the Dutch East Indies–nowadays Indonesia–for several decades. This state monopoly was called the opiumregie. Using information gathered during the opiumregie, this paper estimates price elasticities of opium consumption. It appears that short-term price elasticities of opium use are about -0.7. Long-term price elasticities are about -1.0.


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