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Rational Addiction under Uncertainty
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docs.google.com/spreadsheets/d/1lyNu-tHHJ15Se57I0BMvTVqYV0-Yxx6WShyLXVviqlg/edit#gid=0
We develop a new model of addictive behavior that takes as a starting point the classic rational addiction model of Becker and Murphy, but incorporates uncertainty. We model uncertainty through the Wiener stochastic process.This process captures both random events such as anxiety, tensions and environmental cues which can precipitate and exacerbate addictions, and those sober and thought-provoking episodes that discourage addictions.We derive closed-form formulas for optimal (and optimal expected) addictive consumption and capital trajectories and examine their global and local properties. Our theory provides plausible explanations of several important patterns of addictive behavior and has also novel policy implications.
Date:
23 November 2018, 14:00
Venue:
Manor Road Building, Manor Road OX1 3UQ
Venue Details:
Seminar Room A
Speaker:
Zaifu Yang (University of York)
Organising department:
Department of Economics
Part of:
Nuffield Economic Theory Seminar
Booking required?:
Not required
Audience:
Members of the University only
Editors:
Erin Saunders,
Melis Clark
