Scarred Consumption

Ulrike Malmendier and Leslie Sheng Shen ()

American Economic Journal: Macroeconomics, 2024, vol. 16, issue 1, 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.

JEL-codes: D12 D15 D91 E21 E24 G51 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Scarred Consumption (2020)
Working Paper: Scarred Consumption (2019)
Working Paper: Scarred Consumption (2018)
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DOI: 10.1257/mac.20210387

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