Consumer Behaviour. Does Rational Addiction Exist?

Seminar paper from the year 2018 in the subject Economy - Health Economics, grade: 1,0, University of Hohenheim (Institut für Health Care & Public Management), language: English, abstract: 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 models assumptions are unrealistic. It is argued however that the models 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 models 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.