TABLE 1.

Hypothetical Cost-Benefit Calculations by an Exponential Discounter and 2 Hyperbolic Discounters

	Exponential Discounter	Hyperbolic Discounter A	Hyperbolic Discounter B
Smoker's valuation of benefit, $	25.00	25.00	25.00
Retail pack price paid by the smoker, $	5.00	5.00	5.00
Smoker's perception of health cost/day, $	0.01	0.01	0.01
Long-term discount factor, %	5.0	5.0	5.0
Short-term discount (multiplicative)	NA	0.9	0.6
Discounted value, today, of hypothetical health costs incurred at different points in the future,a cents
Today (day 0)	1.0000	1.0000	1.0000
Tomorrow (day 1)	0.9999	0.8999	0.5999
In 1 wk (day 7)	0.9990	0.8991	0.5994
In 1 mo (day 30)	0.9959	0.8963	0.5975
In 1 y (day 365)	0.9512	0.8561	0.5707
In 5 y (day 1826)	0.7787	0.7008	0.4672
In 10 y (day 3652)	0.6064	0.5458	0.3638
Sum (discounted value of costs, day 0–3652), $	28.74	25.87	17.25
Total costs (retail pack price + discounted value of perceived health harm), $	33.74	30.87	22.25

Note. NA = not applicable. Discounting behavior refers to the extent to which costs and benefits further ahead in the future are undervalued from the perspective of the present. Exponential discounters do not make sudden jumps in their assessment of costs from 1 period to the next. A hyperbolic discounter's overemphasis on the current period underrates all future periods. A short-term discount factor of 0.6 implies a greater premium on immediate gratification than a short-term discount factor of 0.9, a lower assessment of the costs of smoking, and a correspondingly higher likelihood of smoking more cigarettes than intended at any point in the future. The exponential discounter and hyperbolic discounter A perceive the cost of a pack of cigarettes as exceeding the benefits of smoking it, thus will smoke fewer than 20 cigarettes. Hyperbolic discounter B perceives the cost as lower than its benefits and will smoke the whole pack or more.

^aHypothetical health costs = 1 cent/day.