Suppose a smoker wants to quit smoking. The utility that he gets from smoking a cigarette now is 6 utils but, in the long run, that cigarette will generate undiscounted health problems of 10 utils (e.g., an elevated risk of lung cancer)

Question

Use the concept of discounting to explain why impatient smokers may not quit smoking even though the undiscounted net utility of smoking is negative.

Answer 1

Smokers may find it difficult to quit smoking depending on the discount weight that they attach to the future. Suppose that a smoker does not discount the future or attaches a low discount weight to the future. If the smoker discounts delayed utils with a weight of .5, then:
Benefit – Discounted Cost = 6 – (.5 × 10) = 1 .
She prefers 6 utils now to losing 10 utils in the future. In present value, the 10 lost utils in the future are worth only -5 utils now. So, she will smoke today.
But now suppose the smoker discounts the future with a higher discount weight of .8 . That is, we are assuming that a util in the future is worth .8 utils today. Then,
Benefit – Discounted Cost = 6 – (.8 × 10) = –2
With a discount weight of .8, the delayed discounted cost is -8 . This is high enough to exceed the current pleasure of smoking, which is 6 so the smoker will not smoke today.