Abstract

We show that three factors combine to explain the mean magnitude of excess sensitivity reported in studies estimating the consumption response to income changes: the use of macro data, publication bias, and liquidity constraints. When micro data are used, publication bias is corrected for, and households under examination have substantial liquidity, the literature implies little evidence of deviations from consumption smoothing. The result holds when we control for 45 additional variables reflecting the methods employed by researchers and use Bayesian model averaging to account for model uncertainty. The estimates produced by this literature are also systematically affected by the size of the change in income and the chosen measure of consumption.

Reference: Tomas Havranek & Anna Sokolova (2020), "Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 144 Studies Say ‘Probably Not’." Review of Economic Dynamics 35, 97-122.

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Headline result

Excess sensitivity of consumption to anticipated income changes: the estimate corrected for aggregation and publication bias is 0.11, against a mean reported estimate of 0.37, based on about 3,000 estimates from 144 studies (Havranek and Sokolova 2020, Review of Economic Dynamics).

Cited by the Nobel Committee

The Nobel Committee’s Scientific Background to the 2026 prize in economics, awarded to Robert Hall and Michael Woodford, discusses this meta-analysis in its account of Hall’s theory of consumption (Royal Swedish Academy of Sciences, 12 October 2026, page 24): “After correcting for a publication bias Havranek and Sokolova (2020), reported a mean marginal propensity to consume of 11%.” More on how this work has been used.

How to cite

Tomas Havranek & Anna Sokolova (2020), "Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 144 Studies Say ‘Probably Not’." Review of Economic Dynamics 35, 97-122.

BibTeX 
@article{havranek2020excess_sensitivity,
  author  = {Tomas Havranek and Anna Sokolova},
  title   = {Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 144 Studies Say 'Probably Not'},
  journal = {Review of Economic Dynamics},
  year    = {2020},
  doi     = {10.1016/j.red.2019.05.004},
}