Scarred Consumption
American Economic Journal: Macroeconomics
vol. 16,
no. 1, January 2024
(pp. 322-55)
Abstract
We show that prior lifetime experiences can "scar" consumers. Consumers who have lived through times of unemployment exhibit persistent pessimism about their future financial situation and spend significantly less years later, controlling for income, employment, and other life-cycle consumption factors. Due to their experience-induced frugality, scarred consumers build up more wealth. We use a stochastic life-cycle model to show that financial constraints and traditional models of income and unemployment scarring fail to generate the negative relationship between past experiences and consumption. Instead, the relationship is consistent with experience-based learning.Citation
Malmendier, Ulrike, and Leslie Sheng Shen. 2024. "Scarred Consumption." American Economic Journal: Macroeconomics, 16 (1): 322-55. DOI: 10.1257/mac.20210387Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- D15 Intertemporal Household Choice; Life Cycle Models and Saving
- D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
- E21 Macroeconomics: Consumption; Saving; Wealth
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
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