Mental Accounting and the Marginal Propensity to Consume

Konferenzbeitrag

This paper studies how consumers respond to unexpected, transitory income shocks and why. In a randomized control trial, I elicit marginal propensities to consume (MPC) out of different hypothetical income shock scenarios, varying the payment mode, the shock size, and the source of income. The results show respondents exhibit a higher MPC when exposed to a windfall paid out in cash or without any specification of the payment mode, respectively, compared to a windfall deposited in an instant-access savings account, suggesting consumers violate fungibility. Further, the MPC falls with the shock size, whereas it does not vary with the source of income. Using causal machine learningmethods to explore treatment heterogeneity, I find that low liquidity, self-control problems, and a lack of cognitive sophistication contribute to MPC heterogeneity. The results are broadly in line with mental accounting theory.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2022: Big Data in Economics

Classification and Topics

• Classification: Wirtschaft ; Design of Experiments: General ; Consumer Economics: Empirical Analysis ; Household Saving; Personal Finance ; Intertemporal Household Choice; Life Cycle Models and Saving ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡
• Subject: Randomized control trial ; marginal propensity to consume ; fiscal policy ; mental accounting ; causal forest

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bernard, René
• Event: Veröffentlichung
• (who): ZBW - Leibniz Information Centre for Economics
• (where): Kiel, Hamburg
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/264186
• Last update: 10.03.2025, 11:43 AM CET