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Using Subjective Expectations Data to Allow for Unobserved Heterogeneity in Hotz-Miller Estimation Strategies

Author

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  • Yu Zheng

    (City University of Hong Kong)

  • Juan Pantano

    (Washington University in St. Louis)

Abstract

We introduce a novel approach to allow for unobserved heterogeneity in two-step structural estimation strategies for discrete choice dynamic programming models (i.e strategies that avoid full solution methods). We contribute to the literature by adopting a fiÂ…xed effects approach: rather than identifying an unobserved heterogeneity distribution, we actually reveal the true unobserved type of each observation in a first step. We do so by exploiting the tight link between the conditional choice probabilities that are derived from the economic model and just two subjective self-reported assessments about future choice probabilities such as those commonly elicited in major surveys. We uncover the unusual power of ideal expectations data to identify unobserved types for different classes of models. Of more empirical relevance, we show that our results hold when we allow these subjective future choice probabilities to be elicited in less than ideal circumstances, such as, for example, when self-reports display substantial "heaping" at "focal" reference values.

Suggested Citation

  • Yu Zheng & Juan Pantano, 2012. "Using Subjective Expectations Data to Allow for Unobserved Heterogeneity in Hotz-Miller Estimation Strategies," 2012 Meeting Papers 940, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:940
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    Cited by:

    1. Peter Arcidiacono & V. Joseph Hotz & Arnaud Maurel & Teresa Romano, 2014. "Recovering Ex Ante Returns and Preferences for Occupations using Subjective Expectations Data," NBER Working Papers 20626, National Bureau of Economic Research, Inc.
    2. Bonhomme, Stéphane & Lamadon, Thibaut & Manresa, Elena, 2017. "Discretizing Unobserved Heterogeneity," Working Paper Series 2017:21, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    3. Thibaut Lamadon & Elena Manresa & Stephane Bonhomme, 2016. "Discretizing Unobserved Heterogeneity," 2016 Meeting Papers 1536, Society for Economic Dynamics.
    4. Pamela Giustinelli, 2011. "Group Decision Making with Uncertain Outcomes: Unpacking Child-Parent Choices of High School Tracks," Working Papers 2011-030, Human Capital and Economic Opportunity Working Group.

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