Testing consumers' asymmetric reaction to wealth changes

Abstract

This study contains several tests to show that individuals overreact to negative wealth changes, relative to positive wealth changes. This study contains several tests to show that individuals overreact to negative wealth changes, relative to positive wealth changes. This asymmetry, that is found using micro data, suggests that economists should not treat symmetrically the relation between economic variables (consumption for instance) and wealth in their models when wealth decreases. We find that this asymmetry increases with age and picks at retirement.

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