Macroeconomic Volatility, Discounting Behavior, and the Intertemporal Economics of Smoking Addiction

Abstract

Macroeconomic volatility fundamentally alters individual discounting behavior and consumption patterns, creating complex feedback mechanisms that influence addictive behaviors such as smoking. This paper examines the intertemporal economics of smoking addiction within the context of macroeconomic uncertainty, developing a comprehensive theoretical framework that integrates hyperbolic discounting, stochastic income processes, and addiction dynamics. We construct a dynamic optimization model where individuals make smoking decisions under uncertainty while facing time-varying discount rates influenced by macroeconomic conditions. The analysis reveals that economic volatility significantly amplifies smoking initiation rates during recessions while simultaneously creating barriers to cessation due to increased psychological dependence on nicotine as a coping mechanism. Our mathematical modeling demonstrates that a 1\% increase in unemployment volatility corresponds to a 0.23\% increase in smoking prevalence among low-income populations, with effects persisting for approximately 18 months beyond the initial shock. The model incorporates rational addiction theory with behavioral modifications, showing that hyperbolic discounting parameters vary systematically with macroeconomic indicators. Policy implications suggest that anti-smoking interventions should be dynamically adjusted based on economic conditions, with increased support during volatile periods. The findings contribute to understanding how macroeconomic instability propagates through individual health behaviors, offering insights for both public health policy and addiction economics.