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Living Rationally Under the Volcano? An Empirical Analysis of Heavy Drinking and Smoking

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  • 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.

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  • Peter Arcidiacono & Holger Sieg & Frank Sloan, 2001. "Living Rationally Under the Volcano? An Empirical Analysis of Heavy Drinking and Smoking," NBER Working Papers 8602, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8602
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    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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