Rational addiction and time-consistency: An empirical test

Area of Science:

• Behavioral Economics
• Econometrics
• Addiction Studies

Background:

• Rational addiction theory faces empirical challenges distinguishing its demand equation from models with time-inconsistent preferences.
• Existing models struggle to differentiate between forward-looking behavior and time-inconsistent decision-making in empirical analysis.

Purpose of the Study:

• To derive a microfounded test for time-consistency within the rational addiction framework.
• To empirically distinguish between time-consistent and time-inconsistent agents using a general model specification.

Main Methods:

• Developed an encompassing general specification of the rational addiction model.
• Derived and applied a novel microfounded test for time-consistency.
• Utilized a panel dataset of Russian individuals for empirical analysis.

Main Results:

• The derived test successfully distinguishes between time-consistent and time-inconsistent agents.
• Empirical results from Russian cigarette consumers align with the theoretical predictions of rational addiction.
• The time-consistency test did not reject the hypothesis of time-consistent behavior among these consumers.

Conclusions:

• The study provides a valid empirical test for rational addiction theory.
• Findings support the applicability of rational addiction models to real-world consumer behavior, specifically for Russian cigarette consumers.
• The research contributes to resolving empirical ambiguities in addiction modeling.