Advanced Search
MyIDEAS: Login to save this paper or follow this series

Fungibility, Labels and Consumption

Contents:

Author Info

  • Johannes Abeler

    ()
    (University of Nottingham)

  • Felix Marklein

    (University of Bonn)

Abstract

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 result is that in-kind benefits distort consumption more strongly than usually assumed.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nottingham.ac.uk/cedex/documents/papers/2010-13.pdf
Download Restriction: no

Bibliographic Info

Paper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2010-13.

as in new window
Length:
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:not:notcdx:2010-13

Contact details of provider:
Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
Phone: (44) 0115 951 5620
Fax: (0115) 951 4159
Web page: http://www.nottingham.ac.uk/economics/cedex/
More information through EDIRC

Related research

Keywords: Fungibility; In-kind Benefits; Mental Accounting; Narrow Bracketing; Field Experiment; Laboratory Experiment;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
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.:
as in new window
  1. Gibbons, Stephen & Manning, Alan, 2006. "The incidence of UK housing benefit: Evidence from the 1990s reforms," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 799-822, May.
  2. Marco Casari & John C. Ham & John H. Kagel, 2007. "Selection Bias, Demographic Effects, and Ability Effects in Common Value Auction Experiments," American Economic Review, American Economic Association, vol. 97(4), pages 1278-1304, September.
  3. Blow, Laura & Walker, Ian & Zhu, Yu, 2006. "Who benefits from Child Benefit?," The Warwick Economics Research Paper Series (TWERPS) 749, University of Warwick, Department of Economics.
  4. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
  5. Benartzi, Shlomo & Thaler, Richard H, 1995. "Myopic Loss Aversion and the Equity Premium Puzzle," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 73-92, February.
  6. Katherine L. Milkman & John L. Beshears, 2007. "Mental Accounting and Small Windfalls: Evidence from an Online Grocer," Harvard Business School Working Papers 08-024, Harvard Business School, revised Sep 2008.
  7. Richard H. Thaler, 2008. "Mental Accounting and Consumer Choice," Marketing Science, INFORMS, vol. 27(1), pages 15-25, 01-02.
  8. Charles R. Plott, 1997. "Laboratory Experimental Testbeds: Application to the PCS Auction," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(3), pages 605-638, 09.
  9. Nicholas Barberis, 2001. "Mental Accounting, Loss Aversion, and Individual Stock Returns," Journal of Finance, American Finance Association, vol. 56(4), pages 1247-1292, 08.
  10. Todd L. Cherry & Peter Frykblom & Jason F. Shogren, 2002. "Hardnose the Dictator," American Economic Review, American Economic Association, vol. 92(4), pages 1218-1221, September.
  11. Read, Daniel & Loewenstein, George & Rabin, Matthew, 1999. "Choice Bracketing," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 171-97, December.
  12. Drazen Prelec & George Loewenstein, 1998. "The Red and the Black: Mental Accounting of Savings and Debt," Marketing Science, INFORMS, vol. 17(1), pages 4-28.
  13. Fack, Gabrielle, 2006. "Are housing benefit an effective way to redistribute income? Evidence from a natural experiment in France," Labour Economics, Elsevier, vol. 13(6), pages 747-771, December.
  14. Gneezy, U. & Potters, J.J.M., 1997. "An experiment on risk taking and evaluation periods," Open Access publications from Tilburg University urn:nbn:nl:ui:12-73908, Tilburg University.
  15. Peter Kooreman, 2000. "The Labeling Effect of a Child Benefit System," American Economic Review, American Economic Association, vol. 90(3), pages 571-583, June.
  16. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
  17. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 609-43, October.
  18. Daniel Kahneman & Dan Lovallo, 1993. "Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking," Management Science, INFORMS, vol. 39(1), pages 17-31, January.
  19. Glenn Harrison & John List, 2004. "Field experiments," Artefactual Field Experiments 00058, The Field Experiments Website.
  20. Nicholas Barberis & Ming Huang & Tano Santos, 2001. "Prospect Theory And Asset Prices," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 1-53, February.
  21. Armin Falk & Urs Fischbacher, . "A Theory of Reciprocity," IEW - Working Papers 006, Institute for Empirical Research in Economics - University of Zurich.
  22. Alvin E. Roth, 2002. "The Economist as Engineer: Game Theory, Experimentation, and Computation as Tools for Design Economics," Econometrica, Econometric Society, vol. 70(4), pages 1341-1378, July.
  23. Nicholas Barberis & Ming Huang, 2001. "Mental Accounting, Loss Aversion, and Individual Stock Returns," NBER Working Papers 8190, National Bureau of Economic Research, Inc.
  24. Orana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social preferences and the response to incentives: Evidence from personnel data," Natural Field Experiments 00212, The Field Experiments Website.
  25. Armin Falk & James J. Heckman, 2009. "Lab Experiments are a Major Source of Knowledge in the Social Sciences," Working Papers 200935, Geary Institute, University College Dublin.
  26. Daniel J. Benjamin & Sebastian A. Brown & Jesse M. Shapiro, 2006. "Who is “Behavioral”? Cognitive Ability and Anomalous Preferences," Levine's Working Paper Archive 122247000000001334, David K. Levine.
  27. Thaler, Richard H, et al, 1997. "The Effect of Myopia and Loss Aversion on Risk Taking: An Experimental Test," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 647-61, May.
  28. Matthew Rabin & Georg Weizsacker, 2009. "Narrow Bracketing and Dominated Choices," American Economic Review, American Economic Association, vol. 99(4), pages 1508-43, September.
  29. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October.
  30. Levin, Laurence, 1998. "Are assets fungible?: Testing the behavioral theory of life-cycle savings," Journal of Economic Behavior & Organization, Elsevier, vol. 36(1), pages 59-83, July.
  31. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
  32. Moffitt, Robert, 1989. "Estimating the Value of an In-Kind Transfer: The Case of Food Stamps," Econometrica, Econometric Society, vol. 57(2), pages 385-409, March.
  33. Nicholas Barberis & Ming Huang & Richard H. Thaler, 2006. "Individual Preferences, Monetary Gambles, and Stock Market Participation: A Case for Narrow Framing," American Economic Review, American Economic Association, vol. 96(4), pages 1069-1090, September.
  34. Susin, Scott, 2002. "Rent vouchers and the price of low-income housing," Journal of Public Economics, Elsevier, vol. 83(1), pages 109-152, January.
  35. Heath, Chip & Soll, Jack B, 1996. " Mental Budgeting and Consumer Decisions," Journal of Consumer Research, University of Chicago Press, vol. 23(1), pages 40-52, June.
  36. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  37. Laferrere, Anne & Le Blanc, David, 2004. "How do housing allowances affect rents? An empirical analysis of the French case," Journal of Housing Economics, Elsevier, vol. 13(1), pages 36-67, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Kim, S, 1977. "Instability Of Primary Exports, Income Stabilisation Policies And Welf Are," Working Papers 11, University of Sydney, School of Economics.
  2. Ian Lange & Mirko Moro & Mohammad Mahbubur Rahman, 2014. "Policy Labels and Investment Decision-making," Working Papers 2014-02, Colorado School of Mines, Division of Economics and Business.
  3. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde, 2009. "Are Risk Aversion and Impatience Related to Cognitive Ability?," CESifo Working Paper Series 2620, CESifo Group Munich.
  4. Timo Hener, 2013. "Labeling Effects of Child Benefits on Family Savings," Ifo Working Paper Series Ifo Working Paper No. 163, Ifo Institute for Economic Research at the University of Munich.
  5. Kooreman, Peter & Melenberg, Bertrand & Prast, Henriëtte M. & Vellekoop, Nathanaël, 2013. "Framing Effects in an Employee Savings Scheme: A Non-Parametric Analysis," IZA Discussion Papers 7154, Institute for the Study of Labor (IZA).
  6. Steffen Altmann & Christian Traxler, 2012. "Nudges at the Dentist," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2012_15, Max Planck Institute for Research on Collective Goods.
  7. Yann Girard & Florian Hett, 2013. "Competitiveness in dynamic group contests: Evidence from combined field and lab data," Working Papers 1303, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 01 Apr 2013.
  8. Abeler, Johannes & Becker, Anke & Falk, Armin, 2014. "Representative evidence on lying costs," Journal of Public Economics, Elsevier, vol. 113(C), pages 96-104.
  9. Koch, Alexander K. & Nafziger, Julia, 2011. "Goals and Psychological Accounting," IZA Discussion Papers 5802, Institute for the Study of Labor (IZA).
  10. Justine Hastings & Jesse M. Shapiro, 2012. "Mental Accounting and Consumer Choice: Evidence from Commodity Price Shocks," NBER Working Papers 18248, National Bureau of Economic Research, Inc.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:not:notcdx:2010-13. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Suzanne Robey).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.