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Mental accounting and small windfalls: Evidence from an online grocer

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Author Info
Milkman, Katherine L.
Beshears, John

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Abstract

We 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.

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Publisher Info
Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 71 (2009)
Issue (Month): 2 (August)
Pages: 384-394
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Handle: RePEc:eee:jeborg:v:71:y:2009:i:2:p:384-394

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Keywords: Mental accounting Windfalls Marginal propensity to consume Coupons;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Abeler, Johannes & Marklein, Felix, 2008. "Fungibility, Labels, and Consumption," IZA Discussion Papers 3500, Institute for the Study of Labor (IZA). [Downloadable!]
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