The Role of Mental Accounting in Household Spending and Investing Decisions

Zhang, C. Yiwei; Sussman, Abigail B.

doi:10.1002/9781119440895.ch6

Cited by 30 publications

(32 citation statements)

References 85 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…A number of field studies have subsequently documented diverse violations of fungibility [for a recent review, see Zhang and Sussman 2018]. Virtually all of these focus on the question of whether money that is framed as coming from or designated as being earmarked for a specific category of consumption is, in fact, spent on that category [as discussed by Thaler 1985].…”

Section: Introductionmentioning

confidence: 99%

The Red, the Black, and the Plastic: Paying Down Credit Card Debt for Hotels, Not Sofas

et al. 2019

View full text Add to dashboard Cite

Using transaction data from a sample of 1.8 million credit card accounts, we provide the first field test of a major prediction of Prelec and Loewenstein’s theory of mental accounting: that consumers will pay off expenditure on transient forms of consumption more quickly than expenditure on durables. According to the theory, this is because the pain of paying can be offset by the future anticipated pleasure of consumption only when money is spent on consumption that endures over time. Consistent with this prediction, we found that repayment of debt incurred for nondurable goods is an absolute 10% more likely than repayment of debt incurred for durable goods. The strength of this relationship is comparable to an increment in 15 percentage points in the credit card annualized percentage rate. Our results have not only managerial implications for the structuring of financial transactions (e.g., that credit card customers should be given the option of paying off specific purchases) but also more general implications for exploiting variations in the pain of paying in incentive schemes aimed at customers and employees. This paper was accepted by Yan Chen, behavioral economics.

show abstract

Section: Introductionmentioning

confidence: 99%

The Red, the Black, and the Plastic: Paying Down Credit Card Debt for Hotels, Not Sofas

et al. 2019

View full text Add to dashboard Cite

show abstract

“…The emergence of this third factor can be explained by previous research on malleable accounting pointing out the ambiguity of restaurant expenses in mental categorization. According to this, expenses for a restaurant visit could be mentally booked as "evening entertainment, " as "costs for food, " or even as "work costs" if it is work-related dinner (Cheema and Soman, 2006;Zhang and Sussman, 2018). Owing to the ambiguous evaluation of restaurant expenses also in the present study, this spending category was excluded from the analysis.…”

Section: Methodsmentioning

confidence: 99%

“…Only a few studies applied different methods such as interviews (e.g., Adams and Webley, 2001;Ashby and Webley, 2008a,b;Muehlbacher and Kirchler, 2013) or quasiexperiments in the field (e.g., Jackson et al, 2005;Helion and Gilovich, 2014). Surprisingly, in particular, questionnaire surveys are largely underrepresented in mental accounting literature (the few existing survey studies focus predominantly on the questions whether individuals restrict themselves to predefined budgets and how longsighted their financial planning horizon is; Zhang and Sussman, 2018), although questionnaires are a cost-efficient tool for data collection and allow us to survey target populations that normally would not participate in lab experiments. A consequence of the lack of survey research is that attempts to measure mental accounting practices -in contrast to experimentally inducing a situation that leads to one or another practice -are scarce.…”

Section: Assessing Individual Differences In Mental Accountingmentioning

confidence: 99%

“…Since then, it has been applied to a wide range of financial behaviors as, for instance, stock market investments (Grinblatt and Han, 2005), spending and saving decisions (Shefrin and Thaler, 1988), usage of credit cards (Prelec and Simester, 2000), gambling (Cowley, 2008), and taxpayers' compliance (Muehlbacher and Kirchler, 2013). For a recent review of the literature, see Zhang and Sussman (2018).…”

Section: Introductionmentioning

confidence: 99%

“…] the set of cognitive operations used by individuals and households to organize, evaluate, and keep track of financial activities" (p. 183). Mental accounting processes are assumed to serve (at least) three purposes: to simplify decisions, to keep self-control when facing tempting consumption opportunities, and to maximize hedonic pleasure from decision outcomes (Antonides and Ranyard, 2017;Zhang and Sussman, 2018). In his 1999 review, Thaler summarized prior studies on mental accounting.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Individual Differences in Mental Accounting

Muehlbacher

Kirchler

2019

Front. Psychol.

View full text Add to dashboard Cite

Individual differences in mental accounting have rarely been studied, and empirical evidence regarding the relation between mental accounting and personality characteristics is scarce. The present paper reports three studies applying a Likerttype scale to assess the extent individuals engage in mental accounting practices. In each study, the five items of the measure loaded on a single dimension and had acceptable reliability, with a Cronbach's α between 0.72 and 0.77. Study 1 (N = 165) regards the mental processing of prior losses in the theater-ticket problem (Tversky and Kahneman, 1981). Study 2 (N = 114) is based on prior work on income source effects (Fogel, 1997) and analyzes mental accounting of prior gains. In both studies, individual differences in mental accounting moderated the effects of the experimental treatments. In an explorative survey conducted for Study 3 (N = 373), the extent of engaging in mental accounting was found to be positively correlated with being female, with conscientiousness, and financial literacy, and negatively related with education and non-planning impulsivity. Identification of individual differences and their correlates adds to existing evidence for some of the core assumptions of mental accounting theory. A practical implication of the findings is that providers of financial services must take individual differences into account when designing trainings and supportive tools for money management.

show abstract

Perspectives on mental accounting: An exploration of budgeting and investing

Zhang

Sussman

2018

Fin Plan Rev

Self Cite

View full text Add to dashboard Cite

This article provides an overview of recent advances in the literature on mental accounting within the context of consumer financial decision‐making. We first discuss the categorization process that underlies mental accounting and the methods people use to categorize funds. We then highlight some of the notable work that examines how mental accounting influences budgeting, spending, and investment decisions. The article concludes by proposing an agenda for future research, focusing on current gaps in our knowledge and promising areas to explore.

show abstract

The Role of Mental Accounting in Household Spending and Investing Decisions

Cited by 30 publications

References 85 publications

The Red, the Black, and the Plastic: Paying Down Credit Card Debt for Hotels, Not Sofas

The Red, the Black, and the Plastic: Paying Down Credit Card Debt for Hotels, Not Sofas

Individual Differences in Mental Accounting

Perspectives on mental accounting: An exploration of budgeting and investing

Contact Info

Product

Resources

About