Dundee Discussion Papers in Economics 272: When to quit under uncertainty? a real options approach to smoking cessation

Yu-Fu Chen, Dennis Petrie (Lead / Corresponding author)

Research output: Working paper/PreprintDiscussion paper

Abstract

This paper models the decision to quit smoking like an investment decision where the quitter incurs a sunk withdrawal cost today and forgoes their consumer surplus from cigarettes (invests) and hopes to reap an uncertain reward of better health and therefore higher utility in the future (return). We show that a risk-averse mature smoker who expects to benefit from quitting may still rationally choose to delay quitting until they are more confident that quitting is the right decision for them. Such a decision by the smoker is due to the value associated with keeping their option of whether or not to quit open as they learn more about the damage that smoking will have on their future utility. Policies which reduce a smoker’s uncertainty about the damage that smoking with have on their future utility is likely to make them quit earlier.
Original languageEnglish
PublisherUniversity of Dundee
Number of pages30
Publication statusPublished - Nov 2012

Publication series

NameDundee Discussion Papers in Economics
PublisherUniversity of Dundee
No.272
ISSN (Print)1473-236X

Keywords

  • smoking
  • Quitting
  • optimal stopping problem
  • Real options analysis
  • addiction

Fingerprint

Dive into the research topics of 'Dundee Discussion Papers in Economics 272: When to quit under uncertainty? a real options approach to smoking cessation'. Together they form a unique fingerprint.

Cite this