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Mental accounting and small windfalls: Evidence from an online grocer

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  • Milkman, Katherine L.
  • Beshears, John

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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  • Milkman, Katherine L. & Beshears, John, 2009. "Mental accounting and small windfalls: Evidence from an online grocer," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 384-394, August.
  • Handle: RePEc:eee:jeborg:v:71:y:2009:i:2:p:384-394
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    Cited by:

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    2. Johannes Abeler & Felix Marklein, 2017. "Fungibility, Labels, and Consumption," Journal of the European Economic Association, European Economic Association, vol. 15(1), pages 99-127.
    3. Christiaensen , Luc & Pan, Lei, 2012. "On the fungibility of spending and earnings -- evidence from rural China and Tanzania," Policy Research Working Paper Series 6298, The World Bank.
    4. Crossley, Thomas F. & Low, Hamish & Smith, Sarah, 2016. "Do consumers gamble to convexify?," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PA), pages 276-291.
    5. Sven Gruener & Norbert Hirschauer, 2016. "An experimental investigation of mental accounting in environmental economics," International Journal of Agricultural Resources, Governance and Ecology, Inderscience Enterprises Ltd, vol. 12(1), pages 18-26.
    6. Krawczyk, Michał Wiktor, 2015. "Probability weighting in different domains: The role of affect, fungibility, and stakes," Journal of Economic Psychology, Elsevier, vol. 51(C), pages 1-15.
    7. Kaustia, Markku & Rantapuska, Elias, 2012. "Rational and behavioral motives to trade: Evidence from reinvestment of dividends and tender offer proceeds," Journal of Banking & Finance, Elsevier, vol. 36(8), pages 2366-2378.
    8. Jeffrey R. Brown & Arie Kapteyn & Erzo F.P. Luttmer & Olivia S. Mitchell & Anya Samek, 2017. "Behavioral Impediments to Valuing Annuities: Evidence on the Effects of Complexity and Choice Bracketing," NBER Working Papers 24101, National Bureau of Economic Research, Inc.
    9. Katherine Milkman & Todd Rogers & Max Bazerman, 2010. "I’ll have the ice cream soon and the vegetables later: A study of online grocery purchases and order lead time," Marketing Letters, Springer, vol. 21(1), pages 17-35, March.
    10. Michał Krawczyk, 2014. "Probability weighting in different domains: the role of stakes, fungibility, and affect," Working Papers 2014-15, Faculty of Economic Sciences, University of Warsaw.
    11. 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.
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    14. Berning, Joshua P., 2014. "The Effect of Breakfast Cereal Coupons on the Nutritional Quality of Household Purchases," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association (IFAMA), vol. 17(A).
    15. Kelley Bergsma & Danling Jiang, 2016. "Cultural New Year Holidays and Stock Returns around the World," Financial Management, Financial Management Association International, vol. 45(1), pages 3-35, March.
    16. Luc Christiaensen & Lei Pan, 2010. "Transfers and Development: Easy Come, Easy Go?," WIDER Working Paper Series 125, World Institute for Development Economic Research (UNU-WIDER).

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