How Prudent are Consumers?

Using data from the Consumer Expenditure Survey, this paper presents a simple test that provides an explicit estimate of the parameter in the utility function that reflects the strength of the precautionary saving motive, the coefficient of relative prudence. The test yields a fairly precise estimat...

Full description

Saved in:
Bibliographic Details
Published in:The Journal of political economy 1993-12, Vol.101 (6), p.1104-1113
Main Author: Dynan, Karen E.
Format: Article
Language:English
Subjects:
Coefficients
Consistent estimators
Consumer behavior
Consumer economics
Consumer expenditure
Consumer motivation
Consumer spending
Consumers
Economic models
Economic theory
Expenditures
Household consumption
Political Economy
Polls & surveys
Precautionary motives
Precautionary savings
Propensity to save
Risk aversion
Savings
Studies
Tests
Utility functions
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Using data from the Consumer Expenditure Survey, this paper presents a simple test that provides an explicit estimate of the parameter in the utility function that reflects the strength of the precautionary saving motive, the coefficient of relative prudence. The test yields a fairly precise estimate of a small precautionary motive; in fact, the estimate is too small to be consistent with widely accepted beliefs about risk aversion. The presence of liquidity-constrained households does not appear to explain this finding, and there is some evidence that self-selection of households into risky environments also cannot explain the results.
ISSN:0022-3808
1537-534X
DOI:10.1086/261916