Habit Modification in Consumption: Theory and Evidence

The explosion of the consumer society and household credit has given rise to two contrasting views of modern man. One perceives the consumer as highly intelligent who acts rationally purely on information pertaining to her current and future assets. The other portrays the typical consumer as irrational that lives beyond her means. In the tradition of Aristotle, Veblen, and Duesenberry this book challenges these two polar views to propose that consumer habits are rational and can evolve through consumer investments and their participation in social institutions. The study outlines two models of habit modification that highlight the role of (i) investments on consumer durables, and (ii) contractual comittments. Empirical evidence for the USA shows that household debt commitments help the average consumer to modify her habits and to adopt a more rational and forward-looking behaviour that can resemble that proposed by the conventional rational-expectations model. This work sheds light on the rationality and importance of consumer habits and institutions and would be valuable to professionals in Social Sciences and Humanities.