When reading chapter 1 I found really interesting how it explores and question the main assumptions of the Walrasian equilibrium. Among other things questioned, the one that captures more my attention was when questioning the “rational” assumption. We often hear from it during economics courses, when deriving models we get suspicious about the rationality of an individual and how if the choice functions derived from the rational choice theory are accurate.
Regarding this topic I remembered a paper criticizing the “Rational addicition model” of Kevin M. Murphy and Gary S. Becker, it’s name is “Rational Addiction and Vanishing Time Preferences” by P. Vanini.
It is a model of addiction stock (past consumption affects present and future consumption) where utility depends on past consumption and stock and that one unit of present consumption of the addictive good diminishes present tolerance. Contrary to the reinforcement theory of Murphy and Becker that claims that greater past consumption raises present consumption, a time preference rate. In Vanini’s model choice functions are no longer monotone, since the rational choice model with vanishing time preference rate and given future price changes can’t hold with this assumption. Within the model past consumption reduce tolerance and it affects negatively on the utility function.
The example gives a great comparison on how choice functions can be easily reinterpreted to be closer to reality and the possibility of finding multiple equilibriums. Maybe this could help us to improve some of the public policies established to help “rational” individuals.