Transcript ADDICTION Glenys Nkrumah, Mehran Moayed, Preet Sinai, Jessel Chavda, Seyi Aladesanmi and Aishat Hassan.

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?