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Journal Article

Rational Addiction with Learning and Regret

Athanasios Orphanides and David Zervos
Journal of Political Economy
Vol. 103, No. 4 (Aug., 1995), pp. 739-758
Stable URL: http://www.jstor.org/stable/2138580
Page Count: 20
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Rational Addiction with Learning and Regret
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Abstract

We present a theory of rational behavior in which individuals maximize a set of stable preferences over goods with unknown addictive power. The theory is based on three fundamental postulates: that consumption of the addictive good is not equally harmful to all, that individuals possess subjective beliefs concerning this harm, and that beliefs are optimally undated with information gained through consumption. Although individual actions are optimal and dynamically consistent, addicts regret their past consumption decisions and regret their initial assessment of the potential harm of the good. Addict-prone individuals who believe "it could not happen to them" are most likely to be drawn into a harmful addiction.

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