Working Paper: NBER ID: w8602
Authors: Peter Arcidiacono; Holger Sieg; Frank Sloan
Abstract: This study investigates whether models of forward-looking behavior explain the observed patterns of heavy drinking and smoking of men in late middle age in the Health and Retirement Study better than myopic models. We develop and estimate a sequence of nested models which differ by their degree of forward-looking behavior. We also study models which allow for heterogeneity in discounting, and thus test whether certain types of individuals are more likely to show forward-looking behavior than other types. Our empirical findings suggest that forward-looking models with an annual discount factor of approximately 0.78 fit the data the best. These models also dominate other behavioral models based on out-of-sample predictions using data of men aged 70 and over. Myopic models predict rates of smoking and drinking for old individuals which are significantly larger than those found in the data on elderly men.
Keywords: heavy drinking; smoking; forward-looking behavior; myopic behavior
JEL Codes: I1; C1; H4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| forward-looking behavior (D84) | consumption decisions (D12) |
| larger discount factors (D15) | greater declines in consumption with age (D15) |
| myopic models (F11) | higher rates of smoking and drinking (I12) |
| forward-looking models (E17) | better fit for observed data (C52) |