Year: 2016
Type: article
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 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. We first provide suggestive evidence from the field and then use a laboratory experiment to show this result in a tightly controlled environment. In the lab, 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 results is that in-kind benefits distort consumption more strongly than usually assumed. (JEL: C91, C93, D01, H31, I38)
DOI: 10.1093/jeea/jvw007
Authors: Johannes Abeler, Felix Marklein
Language: English
Subfield: General Decision Sciences
Field: Decision Sciences
Domain: Social Sciences
Open Access status: bronze
Funder: Deutsche Forschungsgemeinschaft
OpenAlex ID: W1584450295