Mental Accounting and Fungibility of Money: Evidence from a Retail Panel

Awarded Scholars:
Jesse Shapiro, Brown University
Justine Hastings, Brown University
Project Date:
Jul 2015
Award Amount:
Project Programs:
Behavioral Economics

Professors Jesse Shapiro and Justine Hastings will complete a project with two components that provide new tests of "mental accounting," or how households represent money in their financial decision-making. Psychological evidence suggests that households accommodate financial windfalls or additional expenses differently depending on which "mental accounts" they impact. Though most prior evidence on such mental accounting has been based on laboratory studies or hypothetical scenarios, Shapiro and Hastings will draw from unique panel data on seven years of customer purchases from a large grocery retailer in order to glean new insights into mental accounting using a real-world scenario.

In the first component of their project, they ask whether households enrolling in the Supplemental Nutrition Assistance Program (SNAP) treat these benefits as distinct from other money. Some of the questions to be examined include whether or not households that begin to receive SNAP are less likely to redeem grocery coupons relative to households that don’t receive SNAP. Are those same households, after SNAP receipt, more likely to buy national-brand products than store-brand? And do households adjust their shopping behavior when they receive non-SNAP income?

In their second study, Shapiro and Hastings will examine the extent to which households target their spending and whether they aim to spend a given amount over time. They will focus on gasoline purchases, examining how discount redemption (for example, households who spend a certain amount on groceries are eligible to save 10 cents per gallon on gas purchases from the retailer) and frequency of fill-ups vary with the price of gasoline. Do households switch fuel grades when prices rise or fall? And when prices rise, do households buy less fuel on each trip and make more trips, or do they continue to buy the same quantity? Are households more likely to redeem discounts on purchases when prices rise, even though the amount of the discount does not change with the price?


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