Measuring subjective expectations in developing countries: A critical review and new evidence

The majority of economic decisions are forward-looking and thus involve expectations of future outcomes. Understanding the expectations that individuals have is thus of crucial importance to designing and evaluating policies in health, education, finance, migration, social protection, and many other areas. However, the majority of developing country surveys are static in nature and many do not elicit subjective expectations of individuals. Possible reasons given for not collecting this information include fears that poor, illiterate individuals do not understand probability concepts, that it takes far too much time to ask such questions, or that the answers add little value. This paper provides a critical review and new analysis of subjective expectations data from developing countries and refutes each of these concerns. We find that people in developing countries can generally understand and answer probabilistic questions, such questions are not prohibitive in time to ask, and the expectations are useful predictors of future behavior and economic decisions. The paper discusses the different methods used for eliciting such information, the key methodological issues involved, and the open research questions. The available evidence suggests that collecting expectations data is both feasible and valuable, suggesting that it should be incorporated into more developing country surveys.     

The relationship between smoking,quitting smoking and obesity in Australia: a seemingly unrelated probit approach

Smoking and obesity are two leading causes of preventable death. Further understanding of the relationship between these two risk factors can assist in reducing avoidable morbidity and mortality. This study investigates the empirical association between obesity and the propensity to smoke and to quit smoking, using a Seemingly Unrelated (SUR) probit approach that takes into consideration the potential for reverse causality and unobserved heterogeneity. Using Australian health survey data, this article demonstrates the usefulness of the SUR probit approach in generating information on the relationship between unobserved factors influencing both smoking behaviour and obesity, and in providing estimates of the conditional probabilities of each risk factor. Results suggest the two risk factors are not independent. The presence, size and direction of correlation between the unobserved factors are found to vary by smoking behaviour and by gender. Estimates of conditional probabilities demonstrate smokers have a lower probability of obesity, particularly among females, and ex-smokers have a higher probability of obesity, particularly among males. These findings suggest that health policies targeted at one risk factor may have unintended implications for the other.     

Examining the association of smoking with work productivity and associated costs in Japan

Aims: Smoking is associated with significant health and economic burden globally, including an increased risk of many leading causes of mortality and significant impairments in work productivity. This burden is attenuated by successful tobacco cessation, including reduced risk of disease and improved productivity. The current study aimed to show the benefits of smoking cessation for workplace productivity and decreased costs associated with loss of work impairment.

Materials and methods: The data source was the 2011 Japan National Health and Wellness Survey (n?=?30,000). Respondents aged 20–64 were used in the analyses (n?=?23,738) and were categorized into: current smokers, former smokers, and never smokers. Generalized linear models controlling for demographics and health characteristics examined the relationship of smoking status with the Work Productivity and Activity Impairment questionnaire (WPAI-GH) endpoints, as well as estimated indirect costs.

Results: Current smokers reported the greatest overall work impairment, including absenteeism (i.e. work time missed) and presenteeism (i.e. impairment while at work); however, after controlling for covariates, there were no significant differences between former smokers and never smokers on overall work impairment. Current smokers and former smokers had greater activity impairment (i.e. impairment in daily activities) than never smokers. Current smokers reported the highest indirect costs (i.e. costs associated with work impairment); however, after controlling for covariates, there were no significant differences between former smokers and never smokers on indirect costs.

Limitations and conclusions: Smoking exerts a large health and economic burden; however, smoking cessation attenuates this burden. The current study provides important further evidence of this association, with former smokers appearing statistically indistinguishable from never smokers in terms of work productivity loss and associated indirect costs among a large representative sample of Japanese workers. This report highlights the workplace benefits of smoking cessation across productivity markers and cost-savings.     

Altruism and the Economic Values of Environmental and Social Policies

Altruism is a type of non-use value which can have different definitions depending on the type of goods entering the utility function of the altruists and their expectations about the contributions of others. The purpose of this paper is to measure the trade-offs between different types of altruist values originating from social and environmental policies. Environmental policies are concerned with reducing health effects from a power plant while social policies involve both the attainment of public facilities for education and leisure and an increase in the income of the affected population. The empirical application utilizes a choice experiment technique which allows for valuation of multiple goods. Health effects are decomposed into the values of the risk of becoming ill, the duration of the episodes and the limitations imposed by illness. Altruist values are elicited from a population that is not affected by pollution. Results show that altruism is significant for policies directed to reducing health effects and improving the income level of the affected population, whereas there is egoism for a policy aimed at improving public facilities in the polluted suburb. The value of altruism is significantly influenced by the expectations of net benefits to be received by the affected population.     

Does new health information affect health behaviour? The effect of health events on smoking cessation

This article empirically assesses the role of new health information in the decision to quit smoking. Using individual level data from the Swiss Household Panel, health information is proxied by three different types of health events: physical health problems, mental disorders, and accidents. Exploiting retrospectively reported information on smoking behaviour, smoking cessation is modelled using a discrete time hazard model that also accounts for estimation problems arising from almost quasi-complete separation in the data. The empirical results yield robust evidence that general health problems increase the probability of instantaneous smoking cessation. Differentiating between the type of health event reveals that the overall effect is mainly driven by physical health events.     

The impact of public smoking bans on well‐being externalities: Evidence from a policy experiment

Recent studies on the effects of anti‐smoking policies on subjective well‐being present mixed results and do not account for potential externalities, especially among couples. We contribute to the literature by evaluating the impact of smoking bans on well‐being externalities among smokers and non‐smokers as well as couples of different types of smokers. We exploit the policy experiment provided by the timing of the UK public smoking bans and measure well‐being via the GHQ . We employ matching techniques combined with flexible difference‐in‐differences fixed effects panel data models on data from the British Household Panel Survey. The joint use of matching with fixed effects specifications allows building more comparable treatment and control groups, producing less model‐dependent results and accounting for individual‐level unobserved heterogeneity. We find that public smoking bans appear to have a statistically significant short‐term positive impact on the well‐being of married individuals, especially among women with dependent children. These effects appear to be robust to alternative specifications and placebo tests and are discussed in the light of the economic theory and recent evidence.     

STOCK MARKET CRASH AND EXPECTATIONS OF AMERICAN HOUSEHOLDS

This paper utilizes data on subjective probabilities to study the impact of the stock market crash of 2008 on households' expectations about the returns on the stock market index. We use data from the Health and Retirement Study that was fielded in February 2008 through February 2009. The effect of the crash is identified from the date of the interview, which is shown to be exogenous to previous stock market expectations. We estimate the effect of the crash on the population average of expected returns, the population average of the uncertainty about returns (subjective standard deviation), and the cross-sectional heterogeneity in expected returns (disagreement). We show estimates from simple reduced-form regressions on probability answers as well as from a more structural model that focuses on the parameters of interest and separates survey noise from relevant heterogeneity. We find a temporary increase in the population average of expectations and uncertainty right after the crash. The effect on cross-sectional heterogeneity is more significant and longer lasting, which implies substantial long-term increase in disagreement. The increase in disagreement is larger among the stockholders, the more informed, and those with higher cognitive capacity, and disagreement co-moves with trading volume and volatility in the market.     

Smokeless tobacco,smoking cessation and harm reduction: an economic analysis

Good estimates place ‘hard core’ smoking rates in the United States at approximately 25%, with little change over the decade of the 1990s. This paper examines the possibilities of ‘harm reduction’ with the use of smokeless tobacco. Specifically, using an econometric model we seek to determine whether an increase in the use of smokeless tobacco would lead to reduced smoking rates in the United States. Applying our model to the NHANES III (National Health and Nutrition Examination Survey) we find that the use of smokeless tobacco by an average U.S. male smoker would increase the average probability of smoke cessation by over 10%. Approximately 3 million additional ‘quits’ would result for 26 million smokers. Our study permits an examination of cessation by age groups and we find that males who use smokeless tobacco between 16 and 65 have a 10–14% probability of quitting but that the probability falls beyond age 66. Important implications for life extension and health costs would attend these results with, under conservative assumptions, life years saved approximating 2.16 million and health care cost-savings of about $3 billion per year.     

PERCEIVED ARSENIC‐RELATED MORTALITY RISKS FOR SMOKERS AND NON‐SMOKERS

Prolonged ingestion of arsenic in drinking water can increase the risks of dying of lung and bladder cancer, particularly for smokers. In a survey of arsenic hotspots in the United States, we elicited individuals' subjective mortality risks related to the presence of arsenic in drinking water. Using this data, we address whether smokers perceive mortality risks from this source differently from non‐smokers. We find that those who have smoked at some point in their life have significantly higher perceived arsenic mortality risks than those who have never smoked, on average. We also find that the sample group of current smokers has higher average perceived arsenic mortality risks than those who have quit smoking. We model the decision to treat water for arsenic and find some evidence that current smokers are less likely to engage in this mitigating behavior than are ex‐smokers or non‐smokers even though their perceived risk is higher. We infer that smokers are either less risk averse or have a higher rate of time preference than non‐smokers and ex‐smokers. (JEL I0, D81, Q53)     

Estimating the public economic consequences of introducing varenicline smoking cessation therapy in South Korea using a fiscal analytic framework

Background and aims: Smoking gives rise to many cross-sectorial public costs and benefits for government. Costs arise from increased healthcare spending and work-related social benefits, while smoking itself provides significant revenue for government from tobacco taxes. To better understand the public economic impact of smoking and smoking cessation therapies, this study developed a government perspective framework for assessing smoking-attributable morbidity and mortality and associated public costs. This framework includes changes in lifetime tax revenue and health costs, as well as changes in tobacco tax revenue, from fewer smokers.

Methods: A modified generational accounting framework was developed to assess relationships between smoking-attributable morbidity and mortality and public economic consequences of smoking, including lifetime tax revenue gains/losses, government social transfers, and health spending. Based on the current prevalence of smoking in South Korean males, a cohort model was developed for smokers, former-smokers, and never-smokers. The model simulated the lifetime discounted fiscal transfers for different age cohorts in 5 year age bands, and the return on investment (ROI) from smoking cessation therapy.

Results: Former smokers are estimated to generate higher lifetime earnings and direct tax revenues and lower lifetime healthcare costs due to the reduction of smoking-attributable mortality and morbidity compared to smokers, even after accounting for reduced tobacco taxes paid. Based on the costs of public investments in varenicline, this study estimated a ROI from 1.4–1.7, depending on treatment age, with higher ROI in younger cohorts, with an average ROI of 1.6 for those aged less than 65.

Conclusions: This analysis suggests that reductions in smoking can generate positive public economic benefits for government, even after accounting for lost tobacco tax revenues. The results described here are likely applicable to countries having similar underlying smoking prevalence, comparable taxation rates, and social benefit protection provided to individuals with smoking-related conditions.     

The enduring allure of objective probability

Probability measures are properly considered subjective, if only as a result of the knowledge limitations of human experience. Even if objective probability can be demonstrated as an unambiguously verifiable property of the physical world, our necessarily imperfect access to such aspects of reality would necessitate the construction of subjective probability measures for examinations of human behavior. This paper will explore the distinction between subjective and purportedly objective probability in principle, and demonstrate that actual probabilities can only be subjective, at least ex ante. The paper will next examine the persistent efforts of philosophers, mathematicians, and particularly quantitatively-inclined social scientists, to construct and employ mistaken conceptions of purportedly objective probability. The neo-indeterminist interpretation of sub-atomic particle physics is addressed next, with its attempt to construct an objective-probabilistic account of reality based on the Heisenberg uncertainty principle. An explanation is suggested for the persistent allure of objective probability in the social sciences, which purports to offer a more economical and parsimonious basis for human behavior and the formation of expectations. The view that there are ontologically privileged, objectively-verifiable probabilities and expectations, will be examined and criticized. It appears to be one source of the discredited, though nonetheless widespread and persistent, belief in the efficacy and feasibility of central economic planning.     

THE IMPACT OF PRICES AND CONTROL POLICIES ON CIGARETTE SMOKING AMONG COLLEGE STUDENTS

Smoking among youths and young adults rose throughout the 1990s. Numerous policies were enacted to try to reverse this trend. However, little is known about the impact these policies have on the smoking behavior of young adults. This article uses a dichotomous indicator of daily smoking participation in the past 30 days, an ordered measure representing the frequency of cigarette consumption, and a quasi-continuous measure of the number of cigarettes smoked per day on average to examine the impact of cigarette prices, clean indoor air laws, and campus-level smoking policies on the smoking behaviors of a 1997 cross section of college students. The results of the analysis indicate that higher cigarette prices are associated with lower smoking participation and lower levels of use among college student smokers. Local- and state-level clean indoor air restrictions have a cumulative impact on the level of smoking by current smokers. Complete smoking bans on college campuses are associated with lower levels of smoking among current smokers but have no significant impact on smoking participation. Bans on cigarette advertising on campus as well as bans on the sale of cigarettes on campus have no significant effect on the smoking behavior of college students.     

Subjective probabilistic expectations,household air pollution,and health: Evidence from cooking fuel use patterns in West Bengal,India

An increasing number of empirical studies have investigated the determinants of cooking fuel choice in developing countries, where health risks from household air pollution are one of the most important issues. We contribute to this stream of literature by examining individuals’ subjective probabilistic expectations about health risks when using different types of fuel and their role in cooking fuel usage patterns. We also explore how these patterns, in turn, are associated with health status. Using data collected from 557 rural Indian households, we find that subjective probabilistic expectations of becoming sick from dirty fuel usage are negatively and significantly associated with the fraction of days of dirty fuel usage in households. Concurrently, dirty fuel usage and self-reported health status of the individual being sick are also significantly correlated. We then conduct a policy simulation of information provision regarding the health risks of dirty fuel usage. Our simulation demonstrates that although the provision of information results in statistically significant changes in households’ cooking fuel usage patterns and in individuals’ health status, these changes may be small in size.     

THE FORMATION OF INFLATION PERCEPTIONS: SOME EMPIRICAL FACTS FOR EUROPEAN COUNTRIES

This paper investigates how households form their perceptions of consumer price inflation. Using data from the harmonized European Union consumer survey, we find that inflation perceptions are inefficient and highly heterogeneous, yet contemporaneously related to the actual rate of inflation. Consequently, we estimate how often households update their beliefs using Carroll's (2003) epidemiological model. Our results indicate that inflation perceptions are generally less responsive to new information than expectations. Unlike studies on expectations, we cannot confirm that a constant fraction of the population updates information every month. Also, the cross‐sectional heterogeneity of perceptions is higher than implied by infrequent updating alone.     

Self-rated economic welfare in Russia

Most of those Russian adults who feel that they are poor are not classified as such in the poverty statistics, and most of those who are classified as poor don't feel that way. We study the determinants of peoples’ perceptions of their economic welfare in an unusually rich socioeconomic survey. While income is a highly significant predictor, subjective economic welfare is influenced by many other factors including health, education, employment, assets, relative income in the area of residence and expectations about future welfare. Insights are obtained into how objective data should be weighted in assessing economic welfare.     

Passing the “Torches of Freedom”: Smoking Behaviors of Women in Nepal

Globally, men constitute a larger percentage of smokers than women, but the rate of women smokers is growing. Smoking is a feminist issue: there are unique consequences for women's health, well-being, and agency. Recently passed anti-smoking legislation in Nepal, which has the highest rate of women smokers in South Asia, omits gender-conscious recommendations, potentially diminishing the impact of the legislation on women's lives. Relying on the 2001, 2006, and 2011 waves of the Nepal Demographic and Health Survey, this paper expands the dialogue around women's smoking and places it at the forefront of research on women's health issues. The results indicate that for women in Nepal, formal education and visiting a health facility mitigate smoking behaviors, whereas being employed and living in certain regions promotes smoking behaviors. The aim is for this and the ensuing inquiries to change government anti-smoking legislation in order to improve women's health.     

Revisiting the inflation perception conundrum

Households' inflation perceptions and expectations play a key role in many dynamic macroeconomic and monetary models and are important for the ability of central banks to reach their objective of price stability. This paper revisits the issue of overestimation bias in inflation perceptions and expectations based on new and unique microdata from the Danish part of the EU-Harmonised Consumer Expectations Survey linked to rich household-level data from administrative registers. The analysis shows that accounting for even several of the household characteristics and social gradients usually addressed in the literature is far from sufficient to explain the inflation perception bias. Furthermore, we find that respondents participating in the survey more than once tend to be persistent in their degree of perception bias and that overpessimistic households have larger perception bias than other households. This indicates that inflation perception bias is related to fundamental personality traits. Finally, households' expectations of the future inflation level tend to be mean reverting and associated with the same types of bias as inflation perceptions.     

Smoking Behavior of Older Adults: A Panel Data Analysis Using HRS

Using longitudinal data from Health and Retirement Surveys over 1992–2010, this paper analyzes decisions by older American to continue smoking and the number of cigarettes to consume using two-part hurdle models with correlated effects. We build on the existing literature by incorporating a myriad of factors including cigarette prices, health shocks and smoke-free laws in one econometric framework. Our estimates indicate that higher cigarette prices play an important role in both reducing participation and the intensity of consumption even for this adult population. In addition, health shocks, as measured by newly diagnosed diseases, raise the probability of quitting, highlighting the ‘curative’ aspects of cessation. However, we find very little effect of health on smoking intensity if an older adult does not quit after a health shock. Per capita cigarette consumption in the US declined by over 64% during the period. We show that increased cigarette prices and health shocks together contribute almost equally to explain nearly 86% of the decline, with little that can be attributed to smoking bans and anti-smoking sentiment.

     

Home Bias in International Stock Return Expectations

Despite the advantages of international portfolio diversification, actual equity portfolio holdings reveal a strong bias towards domestic stocks. One hypothesis is that this bias can be explained by stock return expectations expressed in probability judgments. To test that hypothesis and to analyze the underlying effects that might cause distortions in investors' expectations, we conducted a cross country study in Germany and the U.S. comparing participants' judgments about an identical set of German and U.S. stocks.

Results show that both test groups feel more competent about domestic stocks. The asymmetric perception of competence is connected with an asymmetric assessment of probabilities. For both test groups subjective probability distributions of stock returns are significantly less dispersed and more optimistic for stocks associated with high competence levels than for stocks associated with low competence levels.     

Is smoking a fiscal good?

Even though smokers incur higher health expenditures than nonsmokers of the same age, smokers have significantly higher mortality rates, so the expected lifetime health expenditure for a smoker is actually lower than for a nonsmoker. Because of this fact, some politicians and policy-makers have argued that society might actually be better off promoting smoking rather than discouraging it. We consider this argument in a general-equilibrium model where health expenditures are paid for by a single-payer health-care system financed by taxes. Because the percentage increase in the tax base is larger than the percentage increase in health-care expenditures, the elimination of smoking actually decreases the budget-balancing health-care tax rate.