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Fungibility, Labels and Consumption

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  • 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.

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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.

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Date of creation: Jul 2010
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Handle: RePEc:not:notcdx:2010-13

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Fax: (0115) 951 4159
Web page: http://www.nottingham.ac.uk/economics/cedex/
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Keywords: Fungibility; In-kind Benefits; Mental Accounting; Narrow Bracketing; Field Experiment; Laboratory Experiment;

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Citations

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Cited by:
  1. 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.
  2. Koch, Alexander K. & Nafziger, Julia, 2011. "Goals and Psychological Accounting," IZA Discussion Papers 5802, Institute for the Study of Labor (IZA).
  3. Dohmen, Thomas & Falk, Armin & Huffman, David B. & Sunde, Uwe, 2007. "Are Risk Aversion and Impatience Related to Cognitive Ability?," IZA Discussion Papers 2735, Institute for the Study of Labor (IZA).
  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. Abeler, Johannes & Becker, Anke & Falk, Armin, 2014. "Representative evidence on lying costs," Journal of Public Economics, Elsevier, vol. 113(C), pages 96-104.
  6. Kim, S, 1977. "Instability Of Primary Exports, Income Stabilisation Policies And Welf Are," Working Papers 11, University of Sydney, School of Economics.
  7. 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.
  8. Altmann, Steffen & Traxler, Christian, 2012. "Nudges at the Dentist," IZA Discussion Papers 6699, Institute for the Study of Labor (IZA).
  9. Lange, Ian & Moro, Mirko & Rahman, Mohammad, 2014. "Policy Labels and Investment Decision-making," Stirling Economics Discussion Papers 2014-01, University of Stirling, Division of Economics.
  10. 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).

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