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Habit Formation and the Theory of Addiction
Author(s) -
Messinis George
Publication year - 1999
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/1467-6419.00089
Subject(s) - habit , popularity , addiction , consumption (sociology) , relevance (law) , economics , persistence (discontinuity) , positive economics , univariate , empirical research , psychology , econometrics , social psychology , multivariate statistics , sociology , epistemology , computer science , social science , political science , philosophy , geotechnical engineering , neuroscience , machine learning , law , engineering
In the light of repeated rejections of the Hall (1978) version of the life cycle‐permanent income hypothesis and other empirical puzzles, the habit formation hypothesis has increased in popularity since the 1980s. However, existing formulations of habit persistence do not always perform well empirically. This paper pursues two objectives: (i) to outline the habit persistence hypothesis, and (ii) to review the theory of addiction with a focus on issues of relevance to the theory of consumption. In the literature on addiction, two research traditions are discernible: rational addiction and myopic addiction. The former approach emphasises forward‐looking behaviour and defines memory loss as a univariate process. The latter relies on multiple objectives and highlights the role of contractual behaviour. The paper argues that future research in consumption with habits ought to pay more attention to non‐separabilities, allow for multivariate processes when modelling memory loss and consider rational habit modification.