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Invest now, drink later, spend never: On the mental accounting of delayed consumption
Abstract
Monetary transactions in which consumption is temporally separated from purchase naturally lend themselves to multiple frames and to alternative accounting schemes, which nonetheless maintain a modicum of discipline and authenticity. We investigate some of the relevant accounting rules, and find that advanced purchases (e.g., a case of wine) are typically treated as “investments” rather than spending. At the same time, consumption of a good purchased earlier and used as planned (a wine bottle opened for dinner) is often coded as “free”, or even as savings. However, when it is not consumed as planned (a bottle is dropped and broken), then the relevant account, long dormant, is resuscitated and costs associated with the event are perceived as the cost of replacing the good, especially if replacement is actually likely. Related phenomena and assorted implications are discussed.
... Previous studies showed that savings goals and estimated expenses serve as a mechanism of self-control, which helps people avoid overspending (Rha, Montalto, & Hanna, 2006;Urminsky & Goswami, 2015). According to the empirical evidence, consumers often set budgets for different categories of expenditures and track them against overspending behaviours (Cheema & Soman, 2006;Heath & Soll, 1996;Li, Schoeni, Danziger, & Charles, 2010;Shafir & Thaler, 2006). Beyond sticking to the budget, saving for large purchases is another very effective way to control overspending behaviour (Shafir & Thaler, 2006). ...
... According to the empirical evidence, consumers often set budgets for different categories of expenditures and track them against overspending behaviours (Cheema & Soman, 2006;Heath & Soll, 1996;Li, Schoeni, Danziger, & Charles, 2010;Shafir & Thaler, 2006). Beyond sticking to the budget, saving for large purchases is another very effective way to control overspending behaviour (Shafir & Thaler, 2006). Yao and Cheng (2017) show that households that consulted with a financial planner before making saving and investment decisions are less likely to overspend. ...
Over forty percent of American households always feel like they are overspending and they regret their choices. However, these consumers are unaware of the type of overspending they follow. Such overspending behaviors include income overspending (a consumer spends more than his or her earned income), expected overspending (a consumer spends more than expected in a “normal” year), and credit overspending (a consumer does not pay off credit card balances). The study aims to explore how overspending behaviors are affected by the mental accounts of wealth, saving goals, and expense forecasting. Using data from the 2016 Survey of Consumer Finances (SCF), the study describes overspending behavior associated with three types of mental accounts. The study reveals that expected overspending is affected by expenditure forecasts and wealth allocation while credit overspending is affected by wealth allocation only. Income overspending is influenced by wealth allocation, expenditure forecasts, and savings goals. These findings have important implications for consumers and finance professionals. Furthermore, the study reveals the important influence of consumer demographic characteristics on overspending behaviors by showing that certain types of consumers have a higher propensity to overspend.
... Most analytical models of free-to-play build on the assumption that retention comes first and determines monetization [56]. However, a look into the marketing literature reveals that the causality between retention and monetization is unlikely to be unidirectional [57]–[59]. A number of papers in this field also relate to how pricing and sunk costs (such as an initial purchase or previous engagement) affect the level and pattern of consumption [57], [60]. ...
... However, a look into the marketing literature reveals that the causality between retention and monetization is unlikely to be unidirectional [57]–[59]. A number of papers in this field also relate to how pricing and sunk costs (such as an initial purchase or previous engagement) affect the level and pattern of consumption [57], [60]. Paywalls, which block content from customers in much the same way that some F2P games monetize, have also been studied in the literature [61], [62] while industry sources have more directly considered the effect of blocking core gameplay through monetization practices [63]. ...
... Based on this, vaccination could be seen as an investment in one's future health; in this way, it saves the patients money, effort, and time. However, the consumption of goods previously purchased and used as intended is often coded as free goods (Thaler and Schafir, 2006). ...
This research aims to study the demand for
a COVID-19 vaccine. The main objective of this research was to investigate the willingness to pay (WTP)
of those people who are eligible for the government-financed vaccination programme under which this
medication is available free of charge. Based on this,
the study aimed to assess the optimum price that people are willing to pay for the vaccine. More than 300
undergraduate students were questioned in classroom
experiments about their personal preferences in order
to derive the demand curve for a hypothetical market for the COVID-19 vaccine. A regression analysis
of the results showed that the linear and power functions could describe consumer behaviour and predict
an optimal market price for the investigated item. In
addition, the linear model fitted better. Finally, we
compared our result with the real prices of the various
vaccines available on the market to see if the predicted
price was viable under the prevailing market conditions. The optimal price informs us how many people
will receive the next vaccine if it is offered at a specific
market price. It also informs us what price the government should assign to the vaccine to secure a particular target vaccination rate.
... (Table 1explains key abbreviations used throughout the paper.) However, much research has shown that people often neglect opportunity costs (Shafir and Thaler 2006) , so that seemingly trivial or redundant reminders of opportunity costs can alter the perceived attractiveness of options and push people toward options that do not incur those costs (Frederick et al. 2009, Greenberg and Spiller 2016, Spiller 2011 ). 1 For instance, simply prompting consumers with the obvious fact that buying the cheaper of two products will leave them with " extra money " makes that cheaper product more attractive and increases their likelihood of purchasing it (Frederick et al. 2009 ). This observation led Frederick et al. (2009) to suggest that opportunity cost reminders have an asymmetric effect, in that they shift preferences toward the cheaper option, rather than the higher quality one. ...
This paper proposes a novel account of impatience: People pay more attention to the opportunity costs of choosing larger, later rewards than to the opportunity costs of choosing smaller, sooner ones. Eight studies show that when the opportunity costs of choosing smaller, sooner rewards are subtly highlighted, people become more patient, whereas when the opportunity costs of choosing larger, later rewards are highlighted this has no effect. This pattern is robust to variations in the choice task, to the participant population, and to whether the choices are incentivized or hypothetical. We argue that people are naturally aware of the opportunity costs of delayed rewards but pay less attention to those associated with smaller, sooner ones. We conclude by discussing implications for theory and policy.
Data, as supplemental material, are available at https://doi.org/10.1287/mnsc.2016.2547.
This paper was accepted by Yuval Rottenstreich, judgment and decision making.
... Paying in installments may create a subconscious payment and consumption calendar that could lead to transaction decoupling. Therefore, when there is an extended period between purchase, consumption and payment, the mental account created by the individual becomes more flexible in terms of allocating transaction costs, making them more likely to forgo using the last ticket (Shafir & Thaler, 2006). The relationship observed between the NOSHOW' and PAYPLANS' variables (r=0.104, ...
This paper investigates the transaction decoupling phenomenon in purchase and consumption of football match tickets. The theoretical approach describes several economical constructs behind individual decision-making behaviour, including sunk costs, mental accounting and coupling. Results indicate that people who buy bundled tickets are less likely to use their tickets than those who purchase individual ones. Furthermore, the phenomenon proved to be a valid theory in an actual Brazilian football ticket purchase and consumption scenario, confirming that rational elements can also be part of sports consumption. Thus, it can be stated that the type of purchase (bundle or single tickets) influences consumer decision-making.
... This parallels prior studies of basic economic knowledge about prices, taxes, and other economic topics. (19)(20)(21) (2) Do laypeople interpret information from regulatory agencies about cost (and lives saved) as being exaggerated or understated? This parallels research on whether public ratings of risk magnitude match official statistics. ...
Public perceptions of both risks and regulatory costs shape rational regulatory choices. Despite decades of risk perception studies, this article is the first on regulatory cost perceptions. A survey of 744 U.S. residents probed: (1) How knowledgeable are laypeople about regulatory costs incurred to reduce risks? (2) Do laypeople see official estimates of cost and benefit (lives saved) as accurate? (3) (How) do preferences for hypothetical regulations change when mean-preserving spreads of uncertainty replace certain cost or benefit? and (4) (How) do preferences change when unequal interindividual distributions of hypothetical regulatory costs replace equal distributions? Respondents overestimated costs of regulatory compliance, while assuming agencies underestimate costs. Most assumed agency estimates of benefits are accurate; a third believed both cost and benefit estimates are accurate. Cost and benefit estimates presented without uncertainty were slightly preferred to those surrounded by "narrow uncertainty" (a range of costs or lives entirely within a personally-calibrated zone without clear acceptance or rejection of tradeoffs). Certain estimates were more preferred than "wide uncertainty" (a range of agency estimates extending beyond these personal bounds, thus posing a gamble between favored and unacceptable tradeoffs), particularly for costs as opposed to benefits (but even for costs a quarter of respondents preferred wide uncertainty to certainty). Agency-acknowledged uncertainty in general elicited mixed judgments of honesty and trustworthiness. People preferred egalitarian distributions of regulatory costs, despite skewed actual cost distributions, and preferred progressive cost distributions (the rich pay a greater than proportional share) to regressive ones. Efficient and socially responsive regulations require disclosure of much more information about regulatory costs and risks.
In a seminal contribution, Thaler and Johnson (1990) detected the existence of a house money effect which is defined as an increase in risk tolerance after previous gains resulting from a risky activity. Subsequent studies used the term house money effect also in case of windfall gains, i.e., easily acquired money like show-up fees or initial endowments in experiments which does not result from a risky investment. The present study is to the best of our knowledge the first that disentangles the house money effect and windfall gains. We find a clear and systematic pattern that windfall gains increase risk tolerance. In contrast, the house money effect is far less ubiquitous and seems to require skewed lotteries and/or a large number of rounds played. We, therefore, conclude that a careful distinction between windfall gains and the house money effect is warranted in future research.
The seminal works by Daniel Kahneman, Amos Tversky and Richard Thaler have inspired many researches in behavioral economics. Behavioral economics and behavioral finance incorporate the concepts and methods in psychology science into traditional economics (finance).
We examine the rational assumption of the interchangeability of legal and illegal monies. Drawing from economics, behavioral economics, and sociology we answer two main research questions: (1) Do offenders perceive money earned across various income-generating activities (legal vs. illegal) in the same way? (2) How do consumption patterns (spending and saving) differ across various forms of income-generating activities?
We use an a priori mixed methods approach with two interrelated studies; a quantitative survey of incarcerated offenders (N = 58) and a qualitative study of semi-structured interviews from four separate previous research projects (N = 107).
We find evidence for the existence of differential consumption patterns based on quantitative and qualitative data from both incarcerated and active offenders regarding their patterns of spending legal and illegal money.
Our findings have implications for choice theories of crime, for public policy approaches to poverty, and crime prevention interventions.
Purpose
The purpose of this study is to investigate tourist in-destination consumption patterns in the context of bundled holiday packages in different resort categories to identify demand behavior that allows implementing profit-enhancing policies through attractive bundled offers for specific tourist segments.
Design/methodology/approach
This study relies on data gathered in a quasi-experiment to analyze differences in consumption patterns at resort bars over a two-year period (summer 2018 and 2019) before and after the introduction of an all-inclusive soft drinks package.
Findings
The findings inform on bundling strategies according to different degrees of price consciousness and resort category. In particular, guests in upscale resorts are more likely to under-consume items included in a pre-paid bundle and significantly engage in additional spending than economy resort guests.
Originality/value
The quasi-experiment provides the actual in-destination consumption patterns and offering managerial insights and tools to tailor the form and content of bundles according to resort category.
Purpose
This study aims to provide a practical strategy for customer service and salesforce from the basis of behavioral economics. When customers thought they missed a discount but eventually could get the deal, they perceived that they had obtained more value. This research defines such a conversion effect between gain and loss accounts, demonstrates its impact in marketing settings and provides the salesforce a tactic to increase sales and quality of customer service to improve the consumer experience in the social customer journey.
Design/methodology/approach
Three experiments were conducted in a behavioral lab and online setting. Participants were randomly assigned to 2 (gain vs loss) × 2 (converted vs simple) between-subjects designs in the first two experiments and 2 (gain vs loss) × 2 (converted vs simple) × 2 (high price vs low price) in the third experiment. Analysis of variance was conducted to analyze the data. Mediation and moderation analyses were also conducted to identify the mediator and moderator in the model.
Findings
The conversion between gain and loss mental accounts exists, and the converted gains are more likely to lead consumers to make purchases with a once-lost discount than simple gains. This conversion effect is mediated by consumers’ implemental mindset activated by the conversion and moderated by price.
Originality/value
This research shows that mental accounts of gains and losses can be dynamically converted to one another. It provides a managerial tactic for salesforces and customer service to lead consumers to make a purchase decision right away. This is especially important when they aim to enhance the consumer experience in the social customer journey.
Advocates of the sharing economy cite sharing as a viable alternative to asset purchases and ownership. However, Peer-to-peer (P2P) asset sharing, as a service innovation in the sharing economy, enables consumers to capitalize on their asset ownership by providing others with access to those assets for a fee. These prosumers acquire and consume the asset but also provide it as a service sold to others. In exploring the connection between prosumers and asset manufacturers, this study particularly notes the implications of prosumption for initial asset acquisition. A review of existing P2P asset sharing initiatives, three focus groups, and two experimental studies illustrate a positive effect of prosumption on willingness to acquire an asset from manufacturers, especially expensive assets. These results challenge the conventional notion that sharing is exclusively an alternative to ownership. A mediation analysis further indicates that reduced burdens of ownership can explain the positive link between prosumption and willingness to purchase assets from manufacturers. As another novel contribution, this study reveals an interdependency between prosumers and P2P service users, such that prosumers consider their own and also other P2P users’ brand preferences when acquiring assets. In summary, and contrary to conventional wisdom, promoting prosumption via P2P asset sharing might increase sales by manufacturers.
To quantify the impact of a novel “soft” commitment intervention, we randomly allocate 1525 Indian slum dwellers to receive a zip purse and a lockbox (treatment) or a lockbox only (control). After six months, we document a 19 percent increase in total savings in the treatment arm. The effect is sustained in a sub-sample of participants we re-interview during the COVID-19 pandemic, twenty months after initial distribution of the devices. While temptation spending was not reduced, additional analyses suggest that the zip purse served as a hiding rather than a self-control device. Our results highlight the importance of considering the role of financial transfers to other household members in future saving promotion programs.
This paper analyzes the utility calculation principle of travelers from the perspective of mental accounting and proposes a travel choice behavior model that considers travel time and cost (MA-TC model). Then, a questionnaire is designed to analyze the results of the travel choice under different decision-making scenarios. Model parameters are estimated using nonlinear regression, and the utility calculation principles are developed under different hypothetical scenarios. Then, new expressions for the utility function under deterministic and risky conditions are presented. For verification, the nonlinear correlation coefficient and hit rate are used to compare the proposed MA-TC model with the other two models: (1) the classical prospect theory with travel time and cost (PT-TC model) and (2) mental accounting based on the original hedonic editing criterion (MA-HE model). The results show that model parameters under deterministic and risky conditions are pretty different. In the deterministic case, travelers have similar sensitivity to the change in gain and loss of travel time and cost. The prediction accuracy of the MA-TC model is 3% lower than the PT-TC model and 6% higher than the MA-HE model. Under risky conditions, travelers are more sensitive to the change in loss than to the change in gain. Additionally, travelers tend to overestimate small probabilities and underestimate high probabilities when losing more than when gaining. The prediction accuracy of the MA-TC model is 2% higher than the PT-TC model and 6% higher than the MA-HE model.
Purpose
Inaction inertia is the phenomenon in which people are less likely to accept an opportunity after having previously missed a relatively superior one. This research explores how framing quantity promotions as either a freebie (e.g. “buy 1, get 1 free”) or a price bundle (e.g. “buy 2, get 50% off”) influences inaction inertia. Relevant mediators are also identified.
Design/methodology/approach
Three experiments, two using imaginary scenarios and one using an incentive-compatible design, test the hypotheses.
Findings
Consumers who miss a freebie quantity promotion express higher inaction inertia than consumers who miss a price bundle promotion. The cause of this difference is higher perceived regret and greater devaluation that result from missing a superior freebie (vs price bundle) promotion.
Research limitations/implications
Future research should examine how factors influencing perceived regret and devaluation moderate the quantity promotional frame effect on inaction inertia.
Practical implications
The findings provide insights into which quantity promotional frames practitioners should use to reduce inaction inertia.
Originality/value
This study's comprehensive theoretical framework predicts quantity promotional frame effects on inaction inertia and identifies relevant internal mechanisms. The findings are evidence that inaction inertia is caused by both perceived regret and devaluation in certain contexts. Furthermore, this study identifies the conditions in which a price bundle promotional frame is more beneficial than a freebie promotional frame.
Checkout charity is the solicitation of charitable donations from consumers during the checkout process via a cashier or computer automated system. Although checkout charity has become ubiquitous in the retail industry, consumers often felt pressured to donate and wished not to be asked to donate. How can we encourage consumers to donate when they encounter online checkout charity and make feel good about it? This study tried to address this question by identifying how online shoppers’ attitudes and donation behavior could be influenced by donation payment method based on mental accounting. The result confirms that requesting a donation in reward points would enhance consumers’ attitude toward the retailer and their intention to donate to an online checkout charity. This study provides important managerial implications for companies, charities, and practitioners regarding how they can improve their online checkout charity practice to increase donations and sales and garner the benefits of enhanced corporate image by aligning themselves with charities.
Financial management decisions are made by people, and people, in all instances, are shaped by their behavioral traits. Here we provide extensive insight on the theoretical and empirical analysis made on cognitive biases and their influence on financial decisions. To provide a systematic exposition, we set three broad categories: heuristics and biases, choices (including framing and preferences) and social factors. We then describe the main biases within each category and provide an extensive revision of the main theoretical and empirical developments about their impact on financial decisions.
Behavioral Economics: Evidence, Theory, and Welfare provides an engaging and accessible introduction to the motivating questions, real-world evidence, theoretical models, and welfare implications of behavioral economics concepts. Applications and examples illustrate the broad relevance of behavioral economics for consumers, firms, markets, and policy makers alike. The book highlights the process by which economists evaluate evidence and disentangle theories with different social welfare implications. Accessible to students from diverse economic backgrounds, this textbook is an ideal resource for courses on behavioral economics, experimental economics and related areas.
Los principios que caracterizan el enfoque tradicional de ingresos y gastos en la contabilidad no pueden remontarse a un evento histórico particular, son racionales ecológicamente. Su funcionalidad es la consecuencia de la evolución cultural y no de un diseño humano específico. Ésta es la razón por la que los esfuerzos por defender el enfoque de activos y pasivos, avalado por los emisores de estándares, han encontrado dificultades sustanciales. Sólo este último enfoque se basa claramente en un modelo económico puntual a saber, la economía neoclásica.
En contraposición, se argumenta que una base sólida para explicar la racionalidad de los principios de contabilidad que evolucionaron culturalmente se puede encontrar en la economía del comportamiento. Estos principios están en línea con las conductas humanas que se han evidenciado en numerosos experimentos de campo y laboratorio. Es especialmente con respecto a la teoría prospectiva que se identifica un paralelo cercano.
Además, este análisis se combina con una visión del proceso de mercado en la economía. La contabilidad financiera según el enfoque de activos y pasivos no agrega nueva información al mercado, solo resume a nivel de la empresa la información proporcionada por este. Por el contrario, el enfoque de ingresos y gastos suministra información privada al mercado, al estilo de lo descrito por Hayek (1945). El enfoque de ingresos y gastos resulta, por tanto, compatible con la organización de la economía de mercado.
It is widely accepted that consumers underestimate the full cost of car ownership and that correcting this bias could meaningfully accelerate the adoption of shared mobility. Yet this argument fails to consider how much benefit consumers enjoy from owning their own vehicle. Here we estimate the value of private car ownership and use in four US metro areas—Chicago, Illinois; Dallas, Texas; Seattle, Washington; and Washington DC—using online discrete choice experiments. We find that, on average, people would need to be paid $11,197 to give up access to their privately owned vehicle for one year, which is at least as much as estimates of the average total private cost of vehicle ownership (~$9,000). Critically, we find that more than half of this value is non-use value—such as the option to travel whenever or wherever needed at a moment’s notice and the status that comes from owning one’s own vehicle—beyond the use value of getting from A to B. Further, this non-use value was found to be much higher during the COVID-19 pandemic. Our findings reframe the conversation around the transition away from private vehicle dependence, emphasizing the need to provide value and convenience if alternative mobility solutions are to be widely adopted. A choice experiment shows that perceived benefits of vehicle ownership, including non-use values such as schedule flexibility and status in addition to the transport value, are on average larger than their private costs.
Redeeming purchases using discounted credit (i.e., store credit bought at a lower price than its face value) is widespread, but its mental accounting implications remain unclear. This work finds that consumers making multiple redemptions on separate occasions with the same discounted credit do not perceive all redemptions as equally discounted. Redemptions made earlier in that discounted credit’s spending life cycle (upstream redemptions) are perceived as less discounted than redemptions made later (downstream redemptions). This “disproportionate redemption discounting” effect occurs because users feel more certain that they can deplete their credit when they make downstream redemptions and feel like they have the freedom to mentally assign the discounted credit savings unevenly among multiple redemptions. Relatedly, individuals have higher willingness to pay when making downstream redemptions than upstream redemptions. Disproportionate redemption discounting and its’ behavioral consequences are unique to discounted credit and do not generalize to all store credit.
Even in making individual financial decisions, humans will naturally still be affected by personal biases which leads to less than optimal, illogical, and irrational decisions. It will be an important issue due to individual financial decisions which accumulate as a whole country's economic performance. This research introduces the idea to combine personal biases stated in behavioral economic theory with individual financial decision models using a system dynamics approach. The research uses vignette a fractional factorial studies method to calculate the score of personal bias factors. The main findings of the research show that there is a positive feedback loop on individual financial planning which is influenced by personal biases. The research concludes that personal bias factors such as the hedonic editing effect, future spending, category budgeting, endowment effect, and house-money effects are important factors in individual financial planning. Thus, paying attention to these personal biases then may help policy maker to control saving, spending, and investment rates in Indonesia.
There is wide consensus that the brand experience literature (BEL) suffers from a deficit in conceptual works. This study argues that, for brand experience research to overcome its conceptual insipidity, it must re‐examine the core of its intellectual structure to rediscover what ‘an experience provided by brands’ truly implies. The purpose of this paper is to reconceptualize and present a future research framework for research into the concept of brand experience, by identifying both the core and peripheral sources of knowledge of the concept and its association with brand meaning. Through a bibliometric process covering 136 articles published between 2002 and 2018, resulting in a database of 2698 citations, this brand experience conceptual paper fills a critical research gap by providing the first full‐scale bibliometric study to date of the BEL, using a combination of high citation and co‐citation metrics. Based on this conceptual reorientation, a matrix for future development is presented, enabling the reader to visualize the scope and breadth of potential brand experience research horizons in areas relating to customer experience, consumer–brand relationship, online brand experience and sensory brand experience. The four approaches listed in the matrix – firm‐based, social constructionist, virtuality and embodiment – provide a roadmap for future brand experience research undertakings to explore the rich potential of experience evoked by brands.
This paper compares consumer brand purchase loyalty for food products bought either ‘on the go’ (OTG), or for take-home consumption. The study uses two UK consumer packaged goods datasets. The first dataset comprises consumers' purchasing of brands in three product categories: soft drinks, crisps, and savory snacks for on the go consumption. The second contains consumers' purchasing of the same brands for take-home consumption. Analysis uses the polarization index as a behavioral loyalty measure, estimated from the Beta Binomial – Negative Binomial Distribution. This measure controls for the difference in purchase rate and brand market share across on the go and take-home. The study finds that consumer loyalty to brands is markedly higher in purchasing for on the go consumption than for take-home consumption; and that the effect is even stronger for larger brands in on the go.
For four decades, the spirited, contentious ideas of Richard Thaler, laureate of the 2017 Nobel Prize in economics, have perturbed economics and finance as well as decision theory, accounting, marketing, law, and public policy. We review Thaler’s research philosophy and principal contributions, with an emphasis on his contributions to finance. In particular, we summarize and evaluate his work on inefficient markets, framing, decisions under risk, and choice architecture.
Even in making individual financial decisions, humans will naturally still be affected by personal biases which leads to less than optimal, illogical, and irrational decisions. It will be an important issue due to individual financial decisions which accumulate as a whole country's economic performance. This research introduces the idea to combine personal biases stated in behavioral economic theory with individual financial decision models using a system dynamics approach. The research uses vignette a fractional factorial studies method to calculate the score of personal bias factors. The main findings of the research show that there is a positive feedback loop on individual financial planning which is influenced by personal biases. The research concludes that personal bias factors such as the hedonic editing effect, future spending, category budgeting, endowment effect, and house-money effects are important factors in individual financial planning. Thus, paying attention to these personal biases then may help policy maker to control saving, spending, and investment rates in Indonesia.
Este trabajo pretende analizar las principales contribuciones de Richard H. Thaler a la ciencia de la economía del comportamiento, las cuales han sido consideradas para otorgarle el Premio Nobel Sveriges Riksbank de Economía en 2017. Sus aportaciones incorporan la psicología en los procesos de tomas de decisiones económicas apartándose de la racionalidad instrumental y la teoría de la elección racional para contribuir a la generación de una nueva perspectiva en la teoría económica y en la política económica. El método empleado es fundamentalmente el analítico-descriptivo basado en una revisión de sus principales publicaciones realizadas. Finalmente se concluye que Thaler y sus colaboradores ejercen una influencia relevante al generar un nuevo marco de referencia para explicar y predecir resultados económicos desde un acercamiento del comportamiento racional limitado, la teoría de contabilidad limitada y el modelo de planeador-hacedor bajo el concepto de empujón o nudge, el cual tiene un impacto en el diseño e implementación de las políticas públicas.
Código JEL: B31, B41, D91.
Palabras clave: empujón, economía conductual, efecto de dotación, contabilidad mental, racionalidad limitada.
This study presents two experiments that examine the influence of electronic negative word of mouth (e-NWOM). Experiment 1 investigated perceived credibility based on 2 (product awareness: high / low) × 2 (strength of WOM: high / low) × 2 (product type: search good / experience good). Experiment 2 investigated purchase intention based on 2 (product utility: high / low). The experiments involved 530 people from Taiwan. The results indicated that high product awareness and weak e-WOM have less influence on consumer perceived credibility of the e-WOM. E-NWOM for a search good has less influence on consumer perceived credibility than for an experience good. The results also indicated that high utility of products increase sales.
Abstract Ajzen’s theory of planned behavior (TPB) suggests that planned behavior is determined by behavioral intention. Despite extensive literature based on TPB, household mental budgeting behavior explained by TPB is underexplored. The current study empirically tested TPB factors in light of mental budgeting behavior. The hypothesized model was tested using partial least squares structural equation modeling (PLS-SEM). PLS-SEM was employed using a Likert-scaled questionnaire administered to 275 households. The results indicate that mental budgeting attitude and mental budgeting past behavior strongly predict mental budgeting intention, and mental budgeting intention predicts mental budgeting behavior. Further, mental budgeting intention partially mediates the relationship between mental budgeting attitude and mental budgeting behavior, and mental budgeting past behavior and mental budgeting behavior. This study contributes to the academic interest in theoretical progress in household behavior.
Inaction inertia is the phenomenon in which people are less likely to accept a less attractive opportunity after having missed a relatively more attractive one. Previous studies have mainly explored the inaction inertia effect on single products or services, whereas this study explored how the promotional frames of sales packages influence inaction inertia toward the individual items within the sales packages and the inaction inertia effect of the target product under different price strategies. On the basis of the cost assignments of mental accounting and comparisons of the current inferior promotion with missed superior promotion, this study found evidence that when consumers encounter a freebie (bundle) condition, they assign a higher cost to the focal (supplementary) product and a lower cost to the supplementary (focal) product. Therefore, consumers who have missed a freebie (bundle) promotion exhibit lower (higher) inaction inertia toward the focal product, but higher (lower) inaction inertia toward the supplementary product. Applying a similar internal mechanism to pricing strategies, the findings also show that when consumers encounter a two‐component sales package with a surcharge promotion using a partitioned price (vs. a price discount promotion using an all‐inclusive price), they assign a higher cost to the base product and a lower cost to the surcharge. So, consumers who have missed the surcharge (vs. price discount) promotion show higher inaction inertia when the surcharge of the current inferior opportunity is salient, but show less inaction inertia when it is not salient. Moreover, the percent of a surcharge as a part of the total package value moderates the impact of promotional price strategy frames on inaction inertia. These findings have significant implications for both theoreticians and practitioners interested in inaction inertia, promotional frames, and price strategies.
Unlike the principles of traditional economics, namely that goods with monetary equivalency can be substituted, mental accounting states that these goods have different criteria values to consumers depending on the purposes of their use and circumstances at purchase. By modeling an inter-shopping duration that accommodates the mental condition changes captured by a newly formulated latent variable termed “mental loading” herein, our research examines how a consumer’s mental factor affects his or her purchase behavior. From the perspective of behavioral economics, it models consumer purchase behaviors that are seemingly irrational from a traditional economics viewpoint. The model is derived from a threshold-based modeling framework that incorporates consumer heterogeneity in a hierarchical Bayesian manner, and the modeling parameters are estimated by using the Markov Chain Monte Carlo method. By using scanner panel data from a retailer, the empirical results show that our model outperforms those without consumers’ mental condition changes at the time of purchase.
Cambridge Core - Econometrics and Mathematical Methods - Enjoyable Econometrics - by Philip Hans Franses
This research examines how people’s mental accounting is influenced by their thinking style (analytic vs. holistic). Mental accounting literature shows that people mentally allocate their resources into certain accounts and track expenses against them. The current research, however, finds that while analytic thinkers show such “mental labeling effect,” the holistic thinkers’ mental accounting system is flexible. Specifically, analytic thinkers limit their expenses of rebate money to similar category purchases whereas holistic thinkers show preference for both similar and dissimilar category items (studies 1–2). Study 3 shows the mental accounting divergence across analytic- and holistic-thinking groups by examining how they use mental accounting rules in using gift cards (vs. cash). Study 4 exhibits the underlying psychological process in showing that this effect is attributed to differences in categorization flexibility between the analytic- and holistic-thinking groups. In addition, the above effects are moderated by product type. The divergence in mental accounting between analytic and holistic thinkers is mostly evident in utilitarian (vs. hedonic) consumption instances. Study 5 provides further insights into the moderation effect. The implications of these findings include divergence in cross-category effects of price promotions, and the effect of cross-market discounts between analytic and holistic thinkers.
This research finds that when a single gain has strong associations with multiple costs, consumers often mentally deduct that gain from perceived costs multiple times. For example, with some price promotions (e.g., spend $200 now and receive a $50 gift card to spend in the future), consumers mentally deduct the value of the price promotion from the cost of the first purchase when they receive the promotion, as well as from the cost of the second purchase when they use the promotion. Multiple mental deductions based on a single gain result in consumers' perceptions that their costs are lower than they actually are, which can trigger higher expenditures. This mental accounting phenomenon, referred to as "double mental discounting," is driven by the extent towhich gains feel associated, or coupled, withmultiple purchases. This article also documents methods to decouple promotional gains from purchases, thus mitigating double mental discounting.
This paper overviews the theoretical and empirical research on behavioral biases and their influence in the literature. To provide a systematic exposition, we present a unified framework that takes the reader through an original taxonomy, based on the reviews of relevant authors in the field. In particular, we establish three broad categories that may be distinguished: heuristics and biases; choices, values and frames; and social factors. We then describe the main biases within each category, and revise the main theoretical and empirical developments, linking each bias with other biases and anomalies that are related to them, according to the literature.
This paper highlights a change in consumers’ role from buyer to reseller in a growing trend of consumer-to-consumer online resale and discusses the economic psychology under different types of mental accounts when consumers make a resale-aimed purchase. Study 1 investigates how mental accounts will influence consumers’ value assessment and expected resale profit before the purchase for online resale and discovers that topical account yields the highest perceived online resale value but comprehensive account calls for the highest desired resale profit. Study 2 examines how endowment effect may moderate mental account effect on consumer resellers’ desired profit and the result indicates that consumers’ desired profit displays the greatest difference across the conditions of high and low endowment effect when a topical account is applied. The implications of the findings are further discussed.
In this study, we focus on two main payment options in e-commerce: pay-to-order (consumers pay for products when making an order online) and pay-on-delivery (consumers pay for products after delivery). While pay-to-order is the basic payment option in e-commerce, pay-on-delivery becomes more welcomed by consumers as an additional option. Using analytical modeling, we characterize the e-tailer's optimal pricing and inventory decisions under two scenarios: 1) only with pay-to-order, and 2) dual payment scheme (both with pay-to-order and pay-on-delivery). Based on the optimal operation strategy, we compare the e-tailer's profit under these two scenarios and find the best time for e-tailer to offer each payment scheme. Finally, numerical examples are given to prove the theory results and provide management suggestions for e-tailers to improve performance.
Consumers possess a mental account that stores the worth of items purchased and yet to be consumed. Reference prices act as the book values of these items. Movements in the account—the comparison between the reference price and the price paid at entry, and the comparison between the benefit of consumption and the reference price at exit—yield hedonic benefits. The reference price is determined by a psychological process of adaptation to the price evoked by the trade. The model is integrative in that it explains a wide array of observed anomalies such as sunk-cost effects, payment depreciation, reluctance to trade, preference for prepayment, and the flat-rate bias. The model also generates new testable implications.
This paper was accepted by James Smith, decision analysis.
This paper extends prospect theory, mental accounting, and the hedonic editing model by developing an analytical theory to explain the behavior of investors with extended value functions in segregating or integrating multiple outcomes when evaluating mental accounting.
The principles characterizing the traditional revenue-expense approach to accounting cannot be traced back to a distinct event. I argue that they are ecologically rational. Their functionality is the result of cultural evolution, not of unitary human design. This is the reason why the efforts to defend them against the balance-sheet approach endorsed by standard-setters have encountered severe difficulties. Only the latter is clearly based on a coherent model of the economy, namely neoclassical economics. I further argue that a solid basis for explaining the rationale of the culturally evolved accounting principles can be found in behavioral economics. These principles are in line with human behavior as found in numerous laboratory and field experiments. It is especially with respect to Prospect Theory that a close parallel can be identified. I combine this observation with a market process view of the economy. Financial accounting according to the balance-sheet approach does not add new information to the market process; it only summarizes on the firm level information provided by the market. In contrast, the revenue-expense approach provides private information to the market à la Hayek (1945). The revenue-expense approach thus turns out to be congenial to the organization of the market economy.
Purpose
The purpose of this paper is to investigate the relationship between consumer wine knowledge and the aesthetics and ephemerality of wine consumption.
Design/methodology/approach
A survey of 254 respondents for questions relating to objective wine knowledge and frequency of wine consumption, as well as the aesthetics and ephemerality of wine consumption was conducted. Clustering analysis was used to produce four discrete consumer clusters that provide insight into Berthon et al.’s (2009) aesthetic and ontology (AO) framework for the consumption of luxury wine brands.
Findings
The paper finds that four clusters of wine consumers can be identified that exhibit common characteristics outlined in the AO framework.
Practical implications
By clustering consumers and mapping these clusters, the AO framework provides wine marketers with a useful tool to segment the luxury wine market and to develop and deploy tailored wine marketing strategies to target each segment effectively.
Originality/value
This study is one of the first to investigate the relationship between consumer wine knowledge, aesthetics and ephemerality. It offers luxury wine marketers useful insights into targeting wine consumers according to their common characteristics.
Research on consumer decision making has mainly focused on individual products; however, many products are purchased with other items as part of a promotional package. This paper explores how the characteristics (hedonic versus utilitarian) of the items in freebie promotional packages (e.g., buy one item and get a different item for free) influence consumers' preference for the promotional package. Additionally, the authors examine how the characteristics of the focal item influence consumers' choice of either a hedonic or a utilitarian freebie item. Five experiments, rooted in the concepts of consumer avoidance of overloading negative emotions and motivation to seek hedonic pleasure, show that a package with one utilitarian and one hedonic item generates higher purchase intentions and willingness to pay than a package with either two hedonic or two utilitarian items. Furthermore, consumers who purchase a hedonic (utilitarian) focal item are more likely to choose a utilitarian (hedonic) freebie. These effects exist not only in hypothetical scenarios but also in an incentive-compatible design. Moreover, the impact of the focal item characteristics on consumer choice of freebie is moderated by acquisition format and time separation. The authors also explore the internal mechanism influencing consumers' freebie choices. The findings have significant implications for both theory and practice. Copyright
I read Frances Burney's The Wanderer (1814) through the lens of theoretical models borrowed from behavioral economics, a discipline that remains largely undiscovered by literary scholarship. 1 argue that instead of drawing solely from contemporary cultural discourses about credit, Burney makes a simple yet profound argument: money and human behavior are connected, and when we understand men and women better, our economic choices also tend to become smarter. I explore a range of frameworks also used by behavioral economists: the "Prisoner's Dilemma" from game theory, the concept of intertemporal choice, negotiation theory, economic research on trust, among others. Ultimately I claim The Wanderer is a key text for understanding English society in the 1790s for two reasons: the narrative offers a sophisticated yet accessible version of financial didacticism-an authorial strategy 1 read as a skillfully packaged and culturally acceptable form of political agency.
In accordance with prior research into mental accounting and promotional framing, the authors suggest that consumers confronted with price promotions are more likely to integrate the discount into their purchasing costs and consider it a reduced loss. In contrast, consumers offered a bonus pack or an upgrade should separate the promotions into accounts other than purchasing costs and consider them extra gains. The bonus pack and upgrading promotions thus should be more salient and attractive than the price discount promotion. Three experiments examined these propositions: Experiments 1 and 2 showed that participants preferred bonus pack to price discount promotions, mainly because they differently assigned the discounts to specific mental accounts across two promotional frames. Moreover, the results excluded an alternative explanation related to the silver lining principle. Experiment 3 confirmed that upgrading promotion was more attractive than price discount promotion. This study thus offers key theoretical and practical implications.
In the standard economic account of consumer behavior the cost of a purchase takes the form of a reduction in future utility when expenditures that otherwise could have been made are forgone. The reality of consumer hedonics is different. When people make purchases, they often experience an immediate pain of paying, which can undermine the pleasure derived from consumption. The ticking of the taxi meter, for example, reduces one's pleasure from the ride. We propose a “double-entry” mental accounting theory that describes the nature of these reciprocal interactions between the pleasure of consumption and the pain of paying and draws out their implications for consumer behavior and hedonics. A central assumption of the model, which we call prospective accounting, is that consumption that has already been paid for can be enjoyed as if it were free and that the pain associated with payments made prior to consumption (but not after) is buffered by thoughts of the benefits that the payments will finance. Another important concept is coupling, which refers to the degree to which consumption calls to mind thoughts of payment, and vice versa. Some financing methods, such as credit cards, tend to weaken coupling, whereas others, such as cash payment, produce tight coupling.
Our model makes a variety of predictions that are at variance with economic formulations. Contrary to the standard prediction that people will finance purchases to minimize the present value of payments, our model predicts strong debt aversion—that they should prefer to prepay for consumption or to get paid for work after it is performed. Such pay-before sequences confer hedonic benefits because consumption can be enjoyed without thinking about the need to pay for it in the future. Likewise, when paying beforehand, the pain of paying is mitigated by thoughts of future consumption benefits. Contrary to the economic prediction that consumers should prefer to pay, at the margin, for what they consume, our model predicts that consumers will find it less painful to pay for, and hence will prefer, flat-rate pricing schemes such as unlimited Internet access at a fixed monthly price, even if it involves paying more for the same usage. Other predictions concern spending patterns with cash, charge, or credit cards, and preferences for the earmarking of purchases.
We test these predictions in a series of surveys and in a conjoint-like analysis that pitted our double-entry mental accounting model against a standard discounting formulation and another benchmark that did not incorporate hedonic interactions between consumption and payments. Our model provides a better fit of the data for 60% of the subjects; the discounting formulation provides a better fit for only 29% of the subjects (even when allowing for positive and negative discount rates).
The pain of paying, we argue, plays an important role in consumer self-regulation, but is hedonically costly. From a hedonic perspective the ideal situation is one in which payments are tightly coupled to consumption (so that paying evokes thoughts about the benefits being financed) but consumption is decoupled from payments (so that consumption does not evoke thoughts about payment). From an efficiency perspective, however, it is important for consumers to be aware of what they are paying for consumption. This creates a tension between hedonic efficiency and what we call decision efficiency. Various institutional arrangements, such as financing of public parks through taxes or usage fees, play into this tradeoff. A producer developing a pricing structure for their product or service should be aware of these two conflicting objectives, and should try to devise a structure that reconciles them.
A new model of consumer behavior is developed using a hybrid of cognitive psychology and microeconomics. The development of the model starts with the mental coding of combinations of gains and losses using the prospect theory value function. Then the evaluation of purchases is modeled using the new concept of “transaction utility.” The household budgeting process is also incorporated to complete the characterization of mental accounting. Several implications to marketing, particularly in the area of pricing, are developed.
How is risk-taking affected by prior gains and losses? While normative theory implores decision makers to only consider incremental outcomes, real decision makers are influenced by prior outcomes. We first consider how prior outcomes are combined with the potential payoffs offered by current choices. We propose an editing rule to describe how decision makers frame such problems. We also present data from real money experiments supporting a "house money effect" (increased risk seeking in the presence of a prior gain) and "break-even effects" (in the presence of prior losses, outcomes which offer a chance to break even are especially attractive).
Time is a resource. As such, consumers have to make decisions regarding their use of time in the purchase and consumption of goods and services. Using prospect theory and mental accounting as theoretical frameworks, this article investigates whether consumers treat time like money when they make decisions. In a series of studies, we found that the value of consumers' time is not constant but depends on contextual characteristics of the decision situation. Our results also suggest that in deterministic situations, people make decisions involving time losses in a manner consistent with the convex loss function proposed by prospect theory. However, in decision making under conditions of risk, people seem to make risk-averse choices with respect to decisions in the domain of time in contrast to the risk-seeking behavior often found with respect to decisions involving losses of money. We discuss the nonfungibility of time as an explanation for the discrepancy between decisions involving time and those involving money.
Mental accounting is the set of cognitive operations used by individuals and households to organize, evaluate, and keep track of financial activities. Making use of research on this topic over the past decade, this paper summarizes the current state of our knowledge about how people engage in mental accounting activities. Three components of mental accounting receive the most attention. This first captures how outcomes are perceived and experienced, and how decisions are made and subsequently evaluated. The accounting system provides the inputs to be both ex ante and ex post cost–benefit analyses. A second component of mental accounting involves the assignment of activities to specific accounts. Both the sources and uses of funds are labeled in real as well as in mental accounting systems. Expenditures are grouped into categories (housing, food, etc.) and spending is sometimes constrained by implicit or explicit budgets. The third component of mental accounting concerns the frequency with which accounts are evaluated and ‘choice bracketing’. Accounts can be balanced daily, weekly, yearly, and so on, and can be defined narrowly or broadly. Each of the components of mental accounting violates the economic principle of fungibility. As a result, mental accounting influences choice, that is, it matters. Copyright © 1999 John Wiley & Sons, Ltd.
Mental accounting is the set of cognitive operations used by individuals and households to organize, evaluate, and keep track of financial activities. Making use of research on this topic over the past decade, this paper summarizes the current state of our knowledge about how people engage in mental accounting activities. Three components of mental accounting receive the most attention. This first captures how outcomes are perceived and experienced, and how decisions are made and subsequently evaluated. The accounting system provides the inputs to be both ex ante and ex post cost-benefit analyses. A second component of mental accounting involves the assignment of activities to specific accounts. Both the sources and uses of funds are labeled in real as well as in mental accounting systems. Expenditures are grouped into categories (housing, food, etc.) and spending is sometimes constrained by implicit or explicit budgets. The third component of mental accounting concerns the frequency with which accounts are evaluated and 'choice bracketing'. Accounts can be balanced daily, weekly, yearly, and so on, and can be defined narrowly or broadly. Each of the components of mental accounting violates the economic principle of fungibility. As a result, mental accounting influences choice, that is, it matters. Copyright (C) 1999 John Wiley & Sons, Ltd.
In today's marketplace, price bundling is widespread: Manufacturers and retailers routinely offer multiple products for a single, bundled price. Although the effects of price bundling on purchase behavior have been well researched, the effects of price bundling on postpurchase consumption behavior have received almost no attention. In this article, the authors build on the sunk cost literature (e.g., Thaler 1980, 1985) and predict that price bundling leads to a disassociation or "decoupling" of transaction costs and benefits, thereby reducing attention to sunk costs and decreasing a consumer's likelihood of consuming a paid-for service (e.g., a theater performance). Four studies show this to be the case. In two lab studies, the authors show that having a bundled four-day ski pass as opposed to four one-day ski tickets decreases a person's likelihood of skiing on the final day of a four-day ski vacation. They replicate this result in a field study, showing that multiperformance ticket holders are more likely to forgo a given theatrical performance than are single-performance ticket holders, all else held constant. In a final study, the authors show that the decreased attention to sunk costs brought about by price bundling can be either cognitively driven (i.e., it is difficult to allocate a single payment across multiple benefits) or motivationally driven (i.e., there is an underlying desire to avoid consumption). Their findings have practical implications for managers interested in predicting or influencing actual product consumption.
Mental accounting is the set of cognitive operations used by individuals and households to organize, evaluate, and keep track of financial activities. Making use of research on this topic over the past decade, this paper summarizes the current state of our knowledge about how people engage in mental accounting activities. Three components of mental accounting receive the most attention. This first captures how outcomes are perceived and experienced, and how decisions are made and subsequently evaluated. The accounting system provides the inputs to be both ex ante and ex post cost-benefit analyses. A second component of mental accounting involves the assignment of activities to specific accounts. Both the sources and uses of funds are labeled in real as well as in mental accounting systems. Expenditures are grouped into categories (housing, food, etc.) and spending is sometimes constrained by implicit or explicit budgets. The third component of mental accounting concerns the frequency with which accounts are evaluated and 'choice bracketing'. Accounts can be balanced daily
Sumario: Economic reasoning and the ethics of policy -- command and control -- The intimate contest for self-command -- Ethics, law, and the exercise of self-command --- The life you save may be your own -- Strategic relationships in dying -- Economics and criminal enterprise -- What is the business of organized crime -- Strategic analysis and social problems -- What is game theory? -- A framework for the evaluation of arms proposals -- The strategy of inflicting costs -- Who will have the bomb? -- Thinking about nuclear terrorism -- The mind as a consuming organ
Research suggests that individuals mentally track the costs and benefits of a consumer transaction for the purpose of reconciling those costs and benefits on completion of the transaction (Prelec and Loewenstein 1998; Thaler 1980,1985). In transactions where costs precede benefits, this can lead to a systematic and economically irrational attention to sunk costs (Arkes and Blumer 1985; Thaler 1980). In this article, we consider economic exchanges in which costs significantly precede benefits, as with many prepayment types of consumer transactions. We predict a consumer will gradually adapt to a historic cost with the passage of time, thereby decreasing its sunk-cost impact on the consumption of a pending benefit. We label this process of gradual adaptation to costs 'payment depreciation." In a series of experiments, we find evidence of payment depreciation across a range of consumer transactions and offer insight into the behavioral implications of temporally separating costs from benefits. Copyright 1998 by the University of Chicago.
The term 'money illusion' refers to a tendency to think in terms of nominal rather than real monetary values. Money illusion has significant implications for economic theory, yet it implies a lack of rationality that is alien to economists. This paper reviews survey questions regarding people's reactions to variations in inflation and prices, designed to shed light on the psychology that underlies money illusion. The authors propose that people often think about economic transactions in both nominal and real terms, and that money illusion arises from an interaction between these representations, which results in a bias toward a nominal evaluation. Copyright 1997, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Research on decision making under uncertainly has been strongly influenced by the documentation of numerous expected utility
(EU) anomalies—behaviors that violate the expected utility axioms. The relative lack of progress on the closely related topic
of intertemporal choice is partly due to the absence of an analogous set of discounted utility (DU) anomalies. We enumerate
a set of DU anomalies analogous to the EU anomalies and propose a model that accounts for the anomalies, as well as other
intertemporal choice phenomena incompatible with DU. We discuss implications for savings behavior, estimation of discount
rates, and choice framing effects.
The mind as a consuming organ Choice and consequence: Perspectives of an errant economist Money illusion
- T C Schelling
- E Shafir
- P Diamond
- A Tversky
Schelling, T. C. (1984). The mind as a consuming organ. In T. Schelling (Ed.), Choice and consequence: Perspectives of an errant economist (pp. 328–346). Cambridge, MA: Harvard University Press. Shafir, E., Diamond, P., & Tversky, A. (1997). Money illusion. Quarterly Journal of Economics, 112, 341–374.