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Rational Consumers

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  • Kohei Kubota
  • Mototsugu Fukushige

Abstract

The life cycle/permanent income hypothesis (LCPIH) entails two postulates: People have rational expectations and people do not have problems with self‐control. If either or both of these postulates do not apply, we cannot obtain a testable implication for the LCPIH. We use Japanese representative panel data that include responses to self‐reported and retrospective questions in order to elicit behavior such as forward‐looking and self‐control problems. We test the rational expectations hypothesis and the LCPIH implication and find that rational consumers do not change their expenditure in response to expected income changes, which we restrict to fit the two LCPIH postulates.

Suggested Citation

  • Kohei Kubota & Mototsugu Fukushige, 2016. "Rational Consumers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(1), pages 231-254, February.
    • Handle: RePEc:wly:iecrev:v:57:y:2016:i:1:p:231-254
    DOI: 10.1111/iere.12154
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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