It is proposed by Gary S. Becker and Kevin M. Murphy that addictive behavior could be usefully integrated in the rational choice framework. According to their theory, consumers are forward-looking in their decision making and calculate present and future consequences of consuming an addictive good. Becker and Murphy even claim that analyzing addictions as a rational choice offers new insights and a better understanding of addiction.
Earlier economic models typically explain addictions with irrational or myopic behavior in which individuals ignore or highly discount the future when making their decisions. While the rational addiction model has become a standard tool in the economic analysis of addictive behavior, it has also been subject to much criticism. As shown in this paper, there is much evidence that model’s assumptions are unrealistic. It is argued however that the model’s predictions rather than its assumptions should be rejected based on the empirical evidence.
By reviewing empirical studies which tested the Becker Murphy model, this paper seeks to examine to what extent the rational choice approach can be legitimately applied to addictive behavior. The model’s assumptions and implications will be explained. later, the main criticisms about the theory will be discussed. After that, the most relevant studies and their implications will be reviewed.
Table of Contents
1. Introduction
2. The Rational Addiction Model
3. Critiques of the Rational Addiction Model
4. Empirical Analysis
5. Discussion
6. Conclusion
Objectives and Topics
This paper examines the validity of applying the rational choice framework to addictive behavior by analyzing the seminal "Rational Addiction Model" proposed by Becker and Murphy. It investigates whether addictive consumption is a result of forward-looking, rational decision-making or if it is better explained by myopic behavior, while also reviewing empirical evidence and theoretical criticisms of the model.
- Theoretical foundations of the Rational Addiction Model
- Core characteristics: Tolerance, Withdrawal, and Reinforcement
- Critical perspectives on perfect foresight and time-consistent preferences
- Empirical review of studies testing rational vs. myopic behavior
- Policy implications and behavioral economics integration
Excerpt from the Book
The Rational Addiction Model
Becker and Murphy define rational behavior as being utility maximizing, having stable preferences and trying to anticipate future consequences when making choices. In their framework, a person is potentially addicted if an increase in his current consumption increases his future consumption of the addictive good.
In the rational addiction model, which builds on a model introduced by Stigler and Becker in 1977 and further developed by Iannaccone in 1984 and 1986, individuals weigh present and future utility of consuming an addictive substance. Consumers then maximize the total discounted value of utility over their life span subject to a budget constraint. If T equals length of life and σ is a constant rate of time preference the discounted life-time utility would be whereas u(t) would be the utility in period t, y a non-addictive good, c an addictive good and S(t) the stock of “consumption capital”. Consumption capital is a function of past consumption of the addictive good depreciated at rate δ and negatively affecting utility of the current period. The change over time of the individual’s stock of consumption capital can be described as where h[D(t)] stands for the effect of the expenditures on endogenous depreciation or appreciation.
The model explains three common characteristics of addictive behavior: Tolerance: The higher consumption levels have been in the past the smaller utility individuals gets from consumption in the present: Withdrawal: Addicted individuals’ utility fall when they consume less of the addictive good: Reinforcement: The higher consumption levels have been in the past the higher consumption is in the present. Reinforcement is closely related to the concept of adjacent complementary which means that present and future consumption of addictive goods are complements. In the model, adjacent complementary reflects the potential addictiveness of a good towards an individual. It is a fundamental concept of the theory that helps explaining binge behavior and “cold turkey” quit behavior of addicts.
Summary of Chapters
1. Introduction: This chapter introduces the Becker and Murphy model, contrasting it with traditional myopic views of addiction and setting the goal of the paper to evaluate the rational choice approach.
2. The Rational Addiction Model: This section explains the theoretical framework, defining rational utility maximization and the mechanisms of tolerance, withdrawal, and reinforcement.
3. Critiques of the Rational Addiction Model: This chapter outlines common criticisms, particularly regarding the assumptions of perfect foresight, time-consistent preferences, and the ability to explain compulsive behavior.
4. Empirical Analysis: This section provides an extensive review of various empirical studies that have tested the predictions of the rational addiction model using different addictive substances and datasets.
5. Discussion: This chapter synthesizes the empirical findings, addressing the conflict between theoretical assumptions and confirmed predictions, while discussing limitations and alternative behavioral approaches.
6. Conclusion: This final chapter summarizes the status of the rational addiction model as a standard economic tool despite its controversial assumptions, suggesting that future research should focus on more realistic behavioral frameworks.
Keywords
Rational Addiction, Becker and Murphy, Consumption Capital, Utility Maximization, Adjacent Complementarity, Tolerance, Withdrawal, Reinforcement, Myopic Behavior, Perfect Foresight, Behavioral Economics, Cigarette Taxation, Time Preference, Elasticity of Demand, Empirical Analysis.
Frequently Asked Questions
What is the primary subject of this academic paper?
The paper focuses on the "Rational Addiction Model" developed by Gary S. Becker and Kevin M. Murphy, evaluating its economic theoretical underpinnings and its empirical applicability.
What are the central themes covered in this analysis?
The central themes include the rationality of addictive behavior, the role of future price expectations, the concept of "consumption capital," and the debate between forward-looking and myopic models of addiction.
What is the primary goal of the author?
The primary goal is to examine the extent to which the rational choice approach can be legitimately applied to addictive behavior by reviewing both the theoretical model and the empirical studies that have tested its predictions.
Which scientific methods are utilized in this work?
The work employs a literature review methodology, analyzing economic theoretical foundations alongside a comprehensive survey of empirical studies that use micro- and macro-level datasets to test the model.
What topics are discussed in the main body of the paper?
The main body details the mechanics of the rational addiction model, addresses theoretical criticisms, reviews key empirical research (e.g., by Chaloupka, Keeler et al., and Gruber & Köszegi), and discusses the model's limitations in policy implementation.
Which key terms characterize this research?
Key terms include rational choice theory, addictive goods, adjacent complementarity, time-inconsistent preferences, and empirical validation through price and income elasticity.
How does the model differentiate between rational and myopic addicts?
Rational addicts are viewed as forward-looking individuals who account for future consequences in their current consumption decisions, whereas myopic addicts are characterized as ignoring or highly discounting the future.
What is the significance of the findings by Bretteville-Jensen?
Bretteville-Jensen's study is significant as the first to empirically test assumptions about systematic variations in discount rates, suggesting that addiction might potentially affect an individual's time preference.
What do critics like Rogeberg and West argue about the model?
They argue that the model is practically unfalsifiable because its mathematical complexity hides absurd assumptions and because any conflicting empirical observation can be explained away by adjusting the model's parameters.
- Quote paper
- Lukas Dauner (Author), 2018, Consumer Behaviour. Does Rational Addiction Exist?, Munich, GRIN Verlag, https://www.grin.com/document/416898
