Windfall Income and Consumption

Bodkin, Ronald G.

doi:10.9783/9781512818444-029

Cited by 82 publications

(64 citation statements)

References 5 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…A series of papers studying windfalls that were considerably larger than those analyzed in this paper demonstrated that households have a higher propensity to consume out of windfall income than out of regular income and that this propensity to consume decreases as the size of a windfall increases (Bodkin, 1959;Kreinin, 1961;Bird and Bodkin, 1965;Doenges, 1966;Landsberger, 1966;Abdel-Ghany et al, 1983;Keeler et al, 1985). Another set of empirical studies has analyzed the response of consumption to anticipated changes in income rather than unanticipated wealth shocks.…”

Section: Related Empirical Literaturementioning

confidence: 99%

Mental accounting and small windfalls: Evidence from an online grocer

Milkman

Beshears

2009

Journal of Economic Behavior & Organization

165

View full text Add to dashboard Cite

a b s t r a c tWe study the effect of small windfalls on consumer spending decisions by comparing the purchases online grocery customers make when redeeming $10-off coupons with the purchases they make without coupons. Controlling for customer fixed effects and other variables, we find that grocery spending increases by $1.59 when a $10-off coupon is redeemed. The extra spending associated with coupon redemption is focused on groceries that a customer does not typically buy. These results are consistent with the theory of mental accounting but are not consistent with the standard permanent income or lifecycle theory of consumption. While the hypotheses we test are motivated by mental accounting, we also discuss some alternative psychological explanations for our findings.

show abstract

Section: Related Empirical Literaturementioning

confidence: 99%

Mental accounting and small windfalls: Evidence from an online grocer

Milkman

Beshears

2009

Journal of Economic Behavior & Organization

165

View full text Add to dashboard Cite

show abstract

“…The authors note that their mixed results are "probably not precise enough to persuade anyone to abandon strongly held a priori views" (498). 30 Other related studies of the response of consumption to income include Bodkin (1959), Kreinin (1961), Wilcox (1989, 1990), Parker (1999, Souleles (2000Souleles ( , 2002Souleles ( , 2004, Browning and Collado (2001), Hsieh (2003), and Stephens (2003, 2005, 2006, among others.…”

Section: Related Literaturementioning

confidence: 99%

The Reaction of Consumer Spending and Debt to Tax Rebates—Evidence from Consumer Credit Data

Agarwal

Souleles

2007

Journal of Political Economy

370

View full text Add to dashboard Cite

We use a new panel data set of credit card accounts to analyze how consumers responded to the 2001 federal income tax rebates. We estimate the monthly response of credit card payments, spending, and debt, exploiting the unique, randomized timing of the rebate disbursement. We find that, on average, consumers initially saved some of the rebate, by increasing their credit card payments and thereby paying down debt. But soon afterward their spending increased, We would like to thank the editor and two referees,

show abstract

“…By using an incentivized laboratory experiment, we exclude this possibility. Fourth, the only existing studies investigating consumption decisions in incentivized environments analyze how people spend a gift or a windfall gain (e.g., Bodkin 1959, Arkes et al 1994, Milkman & Beshears 2009). Most windfall gains are negligibly small compared to life-time wealth and should not alter spending behavior if customers treat wealth and windfall gain as fungible; but these studies find that people spend more after receiving a gift or windfall gain.…”

Section: Introductionmentioning

confidence: 99%

Fungibility, Labels, and Consumption

Abeler¹,

Marklein²

2016

Journal of the European Economic Association

113

View full text Add to dashboard Cite

The focus for the Centre is research into individual and strategic decision-making using a combination of theoretical and experimental methods. On the theory side, members of the Centre investigate individual choice under uncertainty, cooperative and non-cooperative game theory, as well as theories of psychology, bounded rationality and evolutionary game theory. Members of the Centre have applied experimental methods in the fields of public economics, individual choice under risk and uncertainty, strategic interaction, and the performance of auctions, markets and other economic institutions. Much of the Centre's research involves collaborative projects with researchers from other departments in the UK and overseas. Fungibility of money is a central assumption in the theory of consumer choice: any unit of money is substitutable for another. This implies that the composition of income or wealth is irrelevant for consumption. We find in a field experiment that even in a simple, incentivized setup many subjects do not treat money as fungible.When a label is attached to a part of their budget, subjects change consumption according to the label. A controlled laboratory experiment confirms this result and further shows that subjects with lower cognitive abilities are more likely to violate fungibility. The findings lend support to behavioral models of narrow bracketing and mental accounting. One implication of our results is that in-kind benefits distort consumption more strongly than usually assumed.JEL classification: C91, C93, D01, H31, I38.

show abstract

Windfall Income and Consumption

Cited by 82 publications

References 5 publications

Mental accounting and small windfalls: Evidence from an online grocer

Mental accounting and small windfalls: Evidence from an online grocer

The Reaction of Consumer Spending and Debt to Tax Rebates—Evidence from Consumer Credit Data

Fungibility, Labels, and Consumption

Contact Info

Product

Resources

About