The independence of consumption and current income

(Redirected from Behavioral)

Akerlof addresses the neutrality of consumption and current income. Keynes argues that an individual will make economic decisions based on current income. However, Akerlof's research suggests that an individual will consider other things occurring in their lives, also.

According to Akerlof's research, consumption responds to income because:

1. Sociology argues that consumption is determined by what people believe they should consume, whether these are qualified as entitlements or as obligations, and current income can be an entitlement or an obligation.

2. Sociologists also say that consumption is largely dictated by social expectations, and what people believe they are expected to do, and what they aspire to be.

3. Entitlements are when people believe they have earned something special, after working for a while. Obligations are when people feel pressured to spend, according to the standards in their social circle.