Rational Addiction Research Articles

The financial benefits of health engagement programs to life insurers

Life insurance companies, as equity stakeholders in policyholders’ lives, have incentives to mitigate their health risks. I introduce a framework that enables life insurers to evaluate the financial viability of developing and implementing health engagement programs. By leveraging a proprietary big database of health and mortality information from a large U.S. life insurer, I use machine learning techniques to quantify the benefits and use a rational addiction model to calculate the costs associated with these programs. The estimated net benefit available to the life insurer from the smoking cessation program is USD 87 million and the aggregate benefit from including other chronic conditions is USD 872 million. I explore the broader application of this framework in a general health policy context.

Fanatic Consumer Behavior, Devotion, and Rational Addiction: Unveiling the Distinctive Consumption Patterns of Fans

Fan behavior, characterized by exceptional consumption patterns, stands distinct from typical consumer behavior and has become a focal point in fan theory studies. Scholars have applied various concepts to explain this phenomenon, including fanatic consumer behavior, consumer devotion, and rational addiction. The concept of fanatic consumer behavior emphasizes fans' deep immersion and compulsive engagement in interests like collecting and discussing related merchandise, which aids in forming their unique identity and self-concept. Consumer devotion portrays a religious-like zeal in fans, evident in behaviors such as collecting memorabilia, participating in community activities, and displaying a deep commitment to their favored entities. Rational addiction, as per the economic theory, suggests fans exhibit predictable and habitual consumption patterns, contrasting the random behaviors of ordinary consumers. These theories together offer a comprehensive understanding of fan consumption behaviors, enriching the broader field of consumer behavior research by highlighting the unique and passionate engagement of fans in their areas of interest.

Lexicographic Ordering and Loss Aversion among Low-Income Farmers

As Richard Day explained, expected utility theory suffers from procedural irrationality. This and other problems are illustrated here in the context of decision-making among low-income farmers. Farmers in developing countries are commonly thought to underinvest in modern techniques because their low incomes make them especially risk averse. In addition to the procedural leap of faith, highly restrictive assumptions are needed to apply expected utility theory to the problem. Nor does expected utility theory, as usually prescribed, fit the narrative of loss aversion. The reader is introduced to a procedurally rational substitute called lexicographic safety first. The model is illustrated for the case of rice fertilization in the Philippines, and policy implications are drawn. To illustrate the potential appeal of lexicographic ordering for other applications involving thresholds, a lexicographic model of rational addiction is also provided.

The adoption of mobile payment services by millennials: the roles of smartphone addiction and situational variables

PurposeThe increased usage of smartphones has made mobile payment services (MPS) popular among millennials, but it is uncertain if this shift in behavior is temporary due to situational factors like the pandemic or a long-term trend due to technological advances. This study uses the diffusion of innovation (DOI) literature to assess an integrated model including smartphone addiction, technology-related and consumer-related factors that influence consumers' intention to use MPS. It also explores the interplay of situational variables and smartphone addiction in shaping this relationship.Design/methodology/approachThe authors base the conceptual model on the theory of rational addiction and the theory of optimal flow. This model is then empirically validated through data collected from seven hundred users of MPS in India. Research hypotheses are tested using structural equation modeling and multi-group analysis.FindingsThe study finds that smartphone addiction has a positive impact on millennials' perceived advantages, compatibility, trialability and observability of MPS but does not significantly affect their perceived complexity or risk. The results also suggest that the relationship between smartphone addiction and MPS is moderated by situational factors. In low-priority situations, smartphone addiction strengthens millennials' perceptions and intentions to use MPS, while in high-priority situations, situational factors overshadow the impact of smartphone addiction.Originality/valueThe findings of the study enable organizations to capitalize on smartphone addiction-driven MPS adoption behavior to sustain long-term usage behavior by appropriately understanding the context/situation which drives MPS adoption.

An empirical analysis of e-cigarette addiction

ABSTRACT This paper examines the role of addiction in influencing the demand for e-cigarettes using the Nielsen Retail Scanner Data and the Nielsen Consumer Panel Data between 2012 and 2017. With a comparison of a myopic addiction model, a forward-looking model, and a rational addiction model, this paper tests whether the consumption of e-cigarettes is addictive and rational. Results from both the macro data and the microdata support the rational addictiveness of e-cigarettes. Applying an OLS method and an instrumental variable method in causal inference, results show that the long-run price elasticity estimates are larger than the estimates of the short-run price elasticity of demand for e-cigarettes. Estimates of both long-run and short-run elasticities are greater than one, −1.50 and −1.05, suggesting e-cigarette demand is elastic in both the long run and short run.

Rational Addiction and Cigarette in the Context of Health Economics—A Literature Review

As a typical addictive consumption, cigarettes play a special role in socio-economic activities. The dual addictive characteristics of cigarette consumption make it both an income effect and a health loss effect, which has an important impact on the operation of the social economy: on the one hand, the sociable consumption of the group can maintain or strengthen the social network may bring an increase in income, that is, the income effect; on the other hand, excessive smoking makes the body much more likely to suffer from various chronic diseases, increasing the social health expenditure, and there is a health loss effect. This literature review illustrates the relationship between cigarette consumption and rational addiction behavior. I chose the base paper written by Gary S. Becker, Michael Grossman, and Kevin M. Murphy and titled "An Empirical Analysis of Cigarette consumption." The article concentrates on the smoking addiction problem and uses statistical models to collect data in the USA. Since the smoking addiction problems gets more and more serious, the paper plays an essential role in the policy planning by understanding the cigarette demand.

Effect of Cigarette Prices on Cigarette Consumption in Indonesia: Myopic and Rational Addiction Studies

This study analyzes the effect of cigarette prices on cigarette consumption in Indonesia. By using aggregate macro data on cigarette consumption (administrative data) for 2015-2020, estimated using OLS, 2SLS, GMM, and System-GMM, we found that cigarette prices have a negative and significant effect on cigarette consumption based on myopic and rational addiction models. The estimation results also confirm that cigarettes are inelastic products where price changes do not significantly impact cigarette consumption. It implies that the Government needs to significantly increase excise rates and minimum selling prices regularly to control cigarette consumption more effectively.

Doping in Recreational Sport as a Risk Management Strategy

Knowledge about the prevalence of doping in recreational sports is still limited and fragmented. The same holds true for explanations of doping prevalence rates among different groups. One of the few theoretical models that exists uses the concept of consumer capital based on Stigler and Becker’s theory of rational addiction. Building on the largest study on doping in recreational sports that has ever been conducted in Europe, the FAIR+ survey, hypotheses on the differences in doping prevalence rates, by the level of participation in competitions and by the relative time spent participating in the sport are, developed. Statistical tests support the model while also drawing attention to the limitations of this theoretical explanation.

An Extended Theory of Rational Addiction

This study extends the rational addiction theory by introducing an endogenous discounting of future utilities. The discount rate depends on habits accumulating over time because of the repeated consumption of an addictive good. The endogeneity of the discount rate affects consumption decisions via a habit-dependent rate of time preference and discloses a patience-dependence trade-off. The existence of a steady state in which habits do not grow and its optimality are proven. The local stability properties of the steady state reveal that the equilibrium can be a saddle node, implying smooth convergence to the steady state, but also a stable or unstable focus, potentially predicting real-world behaviors such as binge drinking or extreme addiction states that may drive to death. The stability of the steady state mostly depends on the habit formation process, suggesting that heterogeneity in habit formation may be a key component to explain heterogeneity in time preferences.

Rational Habit Formation: Experimental Evidence from Handwashing in India

We test the predictions of the rational addiction model, reconceptualized as rational habit formation, in the context of handwashing in rural India. To track handwashing, we design soap dispensers with timed sensors. We test for rational habit formation by informing some households about a future change in the returns to daily handwashing. Monitoring and incentives raise handwashing contemporaneously, and effects persist well after they end. In addition, people are rational about this habit formation: when they anticipate future monitoring, they increase their current handwashing. Average child weight and height increase for all study arms given soap dispensers. (JEL D12, D83, D91, I12, I18, J13, O12)

Rational addiction and time-consistency: An empirical test

This paper addresses one of the main empirical problems associated with rational addiction theory, namely, that its derived demand equation is not empirically distinguishable from those of models with forward-looking behavior but with time-inconsistent preferences. Using an encompassing general specification of the rational addiction model we derive a microfounded test of time-consistency. The test allows us to distinguish between time-consistent versus time-inconsistent naïve agents. The results obtained from a panel of Russian individuals conform to the theoretical predictions of the rational addiction model and the proposed test for time-consistency does not reject the hypothesis that Russian cigarette consumers are time-consistent.

Validity of Rational Addiction Model for Cinema Demand in Turkey

This study examines the demand for cinema in Turkey using economic and other explanatory variables. The study includes annual data for the period 2009-2017 on 26 sub-regions of Turkey and a dynamic panel data analysis was performed. Furthermore, the validity of the rational addiction model developed by Becker and Murphy (1988) has been investigated for the Turkish cinema market and the role of addiction in cinema demand has been discussed. Estimation results from the dynamic panel data model show that the number of screen and the share of domestic films in total films are an important component in explaining cinema demand. Furthermore, the results showed that the demand for cinema is compatible with the rational addiction model.

Resolving empirical controversies with mechanistic evidence

The results of econometric modeling are fragile in the sense that minor changes in estimation techniques or sample can lead to statistical models that support inconsistent causal hypotheses. The fragility of econometric results undermines making conclusive inferences from the empirical literature. I argue that the program of evidential pluralism, which originated in the context of medicine and encapsulates to the normative reading of the Russo-Williamson Thesis that causal claims need the support of both difference-making and mechanistic evidence, offers a ground for resolving empirical disagreements. I analyze a recent econometric controversy regarding the tax elasticity of cigarette consumption and smoking intensity. Both studies apply plausible estimation techniques but report inconsistent results. I show that mechanistic evidence allows for discriminating econometric models representing genuine causal relations from accidental dependencies in data. Furthermore, I discuss the differences between biological and social mechanisms and mechanistic evidence across the disciplines. I show that economists mainly rely on mathematical models to represent possible mechanisms (i.e., mechanisms that could produce a phenomenon of interest). Still, claiming the actuality of the represented mechanisms requires establishing that crucial assumptions of these models are descriptively adequate. I exemplify my approach to assessing the quality of mechanistic evidence in economics with an analysis of two models of rational addiction.

Thick Concepts in Economics: The Case of Becker and Murphy’s Theory of Rational Addiction

In this paper, we examine the viability of avoiding value judgments encoded in thick concepts when these concepts are used in economic theories. We focus on what implications the use of such thick concepts might have for the tenability of the fact/value dichotomy in economics. Thick concepts have an evaluative and a descriptive component. Our suggestion is that despite attempts to rid thick concepts of their evaluative component, economists are often not successful. We focus on the strategy of explication to remove the evaluative component of thick concepts and argue that often economists either have to make value judgments or are unable to individuate out the phenomenon under analysis. We support our claim with a case study, namely the concept of addiction in Gary Becker and Kevin Murphy’s Theory of Rational Addiction (1988). One consequence of our analysis is that theories containing thick concepts could commit economists to making value judgments and as such undermine the fact/value dichotomy.

Resolving the milk addiction paradox

The milk addiction paradox refers to an empirical finding in which consumption of non-addictive commodities such as milk appears to be consistent with the theory of rational addiction. This paradoxical result seems more likely when consumption is persistent and with aggregate data. Using both simulated and real data, we show that the milk addiction paradox disappears when estimating the data using an AR(1) linear specification that describes the saddle-path solution of the rational addiction model, instead of the canonical AR(2) model. The AR(1) specification is able to correctly discriminate between rational addiction and simple persistence in the data, to test for the main features of rational addiction, and to produce unbiased estimates of the short and long-run elasticity of demand. These results hold both with individual and aggregated data, and they imply that the AR(1) model is a better empirical alternative for testing rational addiction than the canonical AR(2) model.

The Positive Effect of the Rational Addiction Prevention Program (RAPP) on Adolescents with High Risk for Drug Consumption.

The aim of this longitudinal study was to determine the effect of an original prevention program (RAPP) on the behavioral and cognitive characteristics of adolescents with high risk for substance consumption. Seventy-six Mexican adolescents 12-15years old (38 with high risk (HR) and 38 with low risk (LR)) were selected. RAPP was applied for 3months. Resilience, social skills, attitudes towards substance use, ability to delay a reward, and inhibitory control were assessed in these adolescents, before and after the RAPP intervention. Both groups improved their scores; however, HR achieved greater changes than LR. Findings suggest that HR have behavioral characteristics that can be considered as risk factors for substance consumption (low levels of resilience, low social skills, little family support, positive attitudes towards substance use). RAPP proved to be an effective program for preventing these risk factors for substance use in adolescents.

From pain patient to junkie: An economic theory of painkiller consumption and its impact on wellbeing and longevity

In this paper, I propose a life cycle model of painkiller consumption that combines the theory of health deficit accumulation with the theory of addiction. Chronic pain is conceptualized as a persistent negative shock to lifetime utility that can be treated by pain relief medication. Individuals treated with opioid pain relievers (OPR) develop addiction, which increases their demand for opioids and reduces their welfare and life expectancy through side effects and potential overdose. I calibrate the model for a benchmark American and investigate the comparative dynamics of alternative drug characteristics, pain intensities, and ages of onsets of pain as well as their implications for welfare and life expectancy. Computational experiments are used to identify fully rational and imperfectly rational addiction behavior. Fully rational addicts reduce OPR use when new information about the addictive potential of these drugs arrives. Imperfectly rational addicts further develop their addiction and switch to illicit opioid use. Likewise, a discontinued prescription helps fully rational addicts to quit quickly, while it induces imperfectly rational individuals to take up heroin. I also discuss treatment of OPR addiction and the use of opioids in palliative care.

Evaluating the Effect of Soda Taxes Using a Dynamic Model of Rational Addiction

The obesity rate has grown to epidemic proportions in the United States. Recent scientific studies suggest that excess intake of sugar-sweetened beverages (SSBs) is one of the primary contributors to weight gain. One option to address the growing obesity epidemic is to discourage SSB consumption through fiscal policies such as excising a soda tax. In this paper, we apply the Becker-Murphy model of rational addiction to present evidence that consumers are rationally addicted to soda consumption. Motivated by the evidence, we build a dynamic structural model to quantify the impact of soda taxes on soda purchases and consumption and study the role of addiction in influencing this impact. Using the parameter estimates, we conduct counterfactual analyses based on realistic policy scenarios and evaluate how different tax policies would affect soda purchases. The policy experiments indicate that imposing a soda tax of 1 cent per ounce would reduce soda consumption by 28.3% and addiction level by 31.7%. We find that 20.6% of the reduction in consumption is due to the reduction in the addiction level. We further investigate how these taxes affect consumer and social welfare through a change in addiction level. We find that addiction plays a critical role because a mild reduction in addiction level in the Berkeley tax scenario (1 cent per ounce on regular soda) benefits consumer and social welfare; however, in the Philadelphia tax scenario (1.5 cents per ounce on regular and diet sodas), the reduction in addiction level is too large, and both consumer and social welfare are worse off than before.

Nonconvex consumer preferences, compulsive eating, and food addiction

PurposeEpisodes of compulsive eating may lead to addiction. Changing relative prices does not always work for many food addicts turned overweight or obese individuals. This paper points to when such situations may arise and how they can be remedied.Design/methodology/approachWe modify the standard neoclassical economics model assumption of indifference curves being convex to the origin. It becomes violated in situations when compulsive eaters become food addicts. As a result of that, the assumption of the concave (quasi-concave) utility function is violated too. We also introduce the possibility that compulsive eaters may have stable but nonconstant preferences.FindingsMost important finding of our model is that a smooth dynamic path to addiction, caused by habit, disappears. Hence, the ability for smooth adjustment to relative price changes due to policies targeting obesity may not be applicable for a compulsive addict. We postulate the existence of thresholds past in which irreversible harm to addicted overeaters may occur. Reaching such states implies that no economic tools at our disposal could reverse the harm, which, in turn, deem that many policies directed at altering relative prices are ineffective in correcting overeating addiction and its consequences.Social implicationsEven if we believe in consumer sovereignty, it is possible to shape consumer behavior via policy actions, including the behavior of extremum seekers turned addicts. The public policy of obesity should consider, in this case, its social cost.Originality/valueNo prior research has considered food addiction in light of compulsive eating caused by extremum-seeking behavior. Addiction correcting food policies always relied on either rational or myopic addiction models.

A Dynamic Model of Rational Addiction with Stockpiling and Learning: An Empirical Examination of E-cigarettes

Current regulations on e-cigarettes are minimal compared with cigarette regulations, despite their growing popularity globally. Advocates of e-cigarettes claim that they aid in ceasing smoking habits. However, leaving e-cigarettes unregulated has raised growing health concerns. Policymakers in several countries, including the United States and those in Europe, are considering and experimenting with policy interventions. To evaluate current policies and implement potential regulations on e-cigarettes, policymakers must understand the impact of e-cigarettes on consumers’ smoking behaviors. To address this issue, we construct a dynamic structural model that incorporates consumers’ purchases and consumption behaviors of both cigarettes and e-cigarettes. The results from our proposed model indicate that consumption of e-cigarettes promotes, rather than counteracts, smoking. This is because the less costly e-cigarettes incentivize consumers to build their addiction to nicotine, which, in return, increases future consumption of both cigarettes and e-cigarettes. This finding calls for regulations on e-cigarettes. We then conduct counterfactual analyses to evaluate two policy regulations on e-cigarettes: (1) e-cigarette taxes and (2) price regulation. Because both of these policies have been discussed extensively in both the United States and many countries in the European Union, results of our policy simulations address these policy debates. We find that both are effective in reducing overall consumption of cigarettes and e-cigarettes. We also examine the role of consumers’ heterogeneity on the simulation results as well as the policy implications. We conclude with future research directions, such as inclusion of social influence and cross-selling marketing. This paper was accepted by Matthew Shum, marketing.