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.
"Dynamic Implications of Subjective Expectations: Evidence from Adult Smokers."
American Economic Journal: Applied Economics,
Consumer Economics: Empirical Analysis