Unbiased Analysis of Today's Healthcare Issues

How are German Smokers and American Savers related?

Written By: Jason Shafrin - Feb• 28•06

Medpage Today recently released some statistics regarding the prevalence of smoking cessation among Germans with serious health diseases (“Smokers Can’t Say No in the Face of Serious Circulatory Disease“).

“…the investigators found that among those with a single disorder, the proportion of current smokers among ever-smokers ranged from 29% for myocardial infarction to 44.4% for hypertension.

In addition, unlike smokers with central disease, those with a single peripheral disease ailment were unlikely to quit [point estimate 99%]”

It has been been shown overwhelmingly that smoking is a major cause of many diseases. Why do people continue to smoke in the face of these potential dangers? Dr. Ulrich John, the director of the study, stated that many smokers are uninformed about the relationship between smoking and their disease.

Economists would find this claim dubious. The health dangers of smoking are well known and economists generally assume that individuals are rational. One explanation for this behavior could be hyperbolic discounting of the variety proposed by Laibson (1997) (“Golden Eggs and Hyperbolic Discounting“).

In hyperbolic discounting, individuals rationally choose the amount of smoking they want to have each period using their typical discount rate *. Hyperbolic discounting, however, values the future less than the present. This results in time inconsistent choices. Today I may say that I want to smoke, but will stop in the future. Nevertheless, once I reach the future date specificied, I will value smoking more than I had anticipated. In its original context, Laibson used hyperbolic discounting to explain the phenomenon of Christmas clubs which compel individuals to save. Having smokers post a bond which they would lose if they smoked at a future date is a solution many individuals use to quit. For instance, for every cigarette one has, the individual may compel themselves give a friend a quarter.

* Individuals maximize the following utility function each period: E[u(c_t) + b{SUM}_{j=1 to T} d^j u(c_{t+j})…d is the discount rate; b is the rate of preference between the future and now.

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