Transcript addiction

ADDICTION
Glenys Nkrumah, Mehran Moayed,
Preet Sinai, Jessel Chavda, Seyi
Aladesanmi and Aishat Hassan
WHY ADDICTION?
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Controversial
New wave thinking
Failed taxes (cigarettes and alcohol)
Presumed irrationality
Not conducive for standard economic
analysis
PAPERS
• The Theory of Rational Addiction, Becker
et al (1988)
• Rational Addiction and the Effects of Price
on consumption, Becker et al (1991)
• Addiction and Cue-Triggered Decision
Processes, Bernheim and Rangel (2004)
The Theory of Rational Addiction
Becker et al (1988)
Assumptions
• Past consumption and current consumption are
strong complementaries.
• Addicts behave rationally. They are forwardlooking and have stable preferences
Results
• People who heavily discount the future are more
likely to become addicted.
• Long run demand for addictive goods tend to
be more price elastic than the demand for
non-addictive goods.
Rational Addiction and the Effect of
Price on Consumption. Becker et al
(1991)
Assumptions
• Reinforcement – greater past consumption increases
desire for present consumption.
• Tolerance – when past consumption is greater, utility from
a given consumption amount is lower.
∂U/∂S =Us<0
U(t) = U[ c(t), S(t), y(t)] where U=utility, c=consumption,
S=addictive consumption and y=non-addictive goods
Results
• Young/poorer addicts respond to changes in price while
‘richer’/adults respond to changes in future consequences
• Concludes with extent to which only price would effect drug
addiction
Addiction and Cue-Triggered Decision
Processes. Bernheim and Rangel
(2004)
Key Ideas
• Use among addicts is frequently a
mistake.
• Experience makes an individual vulnerable
to environmental cues that trigger
mistaken usage.
• Addicts understand and manage their
susceptibilities.
CONCLUSION
• Rich/Adult addicts and Poor/Young addicts
• Permanent changes in prices have more
of an effect on addictive demand
To what extent does price affect the
consumption behaviour of a “rich”
adult addict?