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Mental accounting of public funds – The flypaper effect in the lab

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  • Becker, Johannes
  • Hopp, Daniel
  • Kriebel, Michael

Abstract

We report evidence from a series of laboratory experiments that focus on mental accounting of ‘public funds’. Groups of three players decide upon how much to redistribute within the group. We measure the preference to redistribute when transfers are made either out of individual accounts (the players’ own money) or out of a common account (the group’s money). Since the common account is dissolved after each round and paid out to individuals, its size should not affect the decision to redistribute. The experiment is designed to control for anchoring as a potential confounding effect. We find that the size of the common account significantly affects redistribution behavior. Specifically, the transfer increases in the size of the common account. This effect is significantly more pronounced when the transfer is paid out of the common account (instead of the individual account). We interpret these findings as evidence for a flypaper effect due to mental accounting.

Suggested Citation

  • Becker, Johannes & Hopp, Daniel & Kriebel, Michael, 2020. "Mental accounting of public funds – The flypaper effect in the lab," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 321-336.
  • Handle: RePEc:eee:jeborg:v:176:y:2020:i:c:p:321-336
    DOI: 10.1016/j.jebo.2020.04.026
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    More about this item

    Keywords

    Mental accounting; Flypaper effect; Lab experiments;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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