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ADDICTION Glenys Nkrumah, Mehran Moayed, Preet Sinai, Jessel Chavda, Seyi Aladesanmi and Aishat Hassan WHY ADDICTION? • • • • • 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?