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American Economic Journal: Applied Economics: Vol. 6 No. 1 (January 2014)

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Dynamic Implications of Subjective Expectations: Evidence from Adult Smokers

Article Citation

Wang, Yang. 2014. "Dynamic Implications of Subjective Expectations: Evidence from Adult Smokers." American Economic Journal: Applied Economics, 6(1): 1-37.

DOI: 10.1257/app.6.1.1

Abstract

We set up a dynamic discrete choice model with subjective expectations data to explain adult smokers' find important differences between subjective survival probabilities and those estimated using observed mortality data. Subjectively, individuals attach less weight to their health conditions and smoking choices and more weight to such factors as age, race, and parents' longevity. Moreover, adult smokers are found to care more about their health and to be more forward-looking than predicted by a rational expectations framework. We further show the importance of unobserved heterogeneity in agents' subjective survival probabilities, and discuss policy implications of subjective expectations.

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Online Appendix (102.32 KB) | Download Data Set (115.42 KB) | Author Disclosure Statement(s) (126.78 KB)

Authors

Wang, Yang (Lafayette College)

JEL Classifications

D12: Consumer Economics: Empirical Analysis
D84: Expectations; Speculations
I12: Health Production

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