Consumer behavior: An empirical analysis

Consumer behavior has been an important focus of empirical research in economics for many years. While this research has answered many questions about consumer behavior, it has left other important issues unresolved. This thesis contributes to what we know about three of those unresolved issues: the strength of the precautionary-saving motive, the role of habit formation; and possible differences in rates of time preference across socioeconomic groups.;The first essay in the thesis, titled "How Prudent are Consumers?" explores the strength of individuals' precautionary-saving motives. It uses a standard life-cycle model to construct a straightforward test that not only indicates whether precautionary motives are present, but also provides a direct estimate of the coefficient of relative prudence. This test is applied to household expenditure data from the Consumer Expenditure Survey. The main empirical finding is that precautionary-saving motives are not significant and that the estimated coefficient of relative prudence is small.;The second essay of the thesis, titled "Habit Formation in Consumer Preferences," tests whether individuals' current utility and consumption decisions are influenced by a "habit stock" which is based on past levels of consumption. The essay derives an approximate first-order condition for a life-cycle consumer with preferences that exhibit habit formation. Then it estimates this condition using household expenditure data from the Panel Study on Income Dynamics. The results indicate that habit formation is not an important part of consumer behavior; the estimated habit formation parameter is generally close to zero.;The third essay, titled "The Rate of Time Preference and Shocks to Wealth," investigates whether rates of time preference differ across socioeconomic groups. Recent Euler equation analysis of finds that rates of consumption growth differ significantly across socioeconomic groups. One explanation for this finding is that rates of time preference differ substantially across socioeconomic groups. This essay proposes and tests an alternative explanation: the socioeconomic differences in consumption growth rates were caused by group-specific shocks to wages that occurred during the sample period. After controlling for these shocks, the significant difference between the consumption growth rates of college-educated households and non-college-educated households disappears.