Work

Mental Accounting and Consumer Choice: Evidence from Commodity Price Shocks

Year: 2012

Type: report

Abstract: We formulate a test of the fungibility of money based on parallel shifts in the prices of different quality grades of a commodity.We embed the test in a discrete-choice model of product quality choice and estimate the model using panel microdata on gasoline purchases.We find that when gasoline prices rise consumers substitute to lower octane gasoline, to an extent that cannot be explained by income effects.Across a wide range of specifications, we consistently reject the null hypothesis that households treat "gas money" as fungible with other income.We evaluate the quantitative performance of a set of psychological models of decision-making in explaining the patterns we observe.We also use our findings to shed light on extant stylized facts about the time-series properties of retail markups in gasoline markets.

Source: National Bureau of Economic Research

DOI: 10.3386/w18248

Authors: Justine Hastings, Jesse Shapiro

Institutions: Northwestern University, National Bureau of Economic Research, Cornell University, Brown University, Yale University, University of Chicago, Columbia University, University of California, Berkeley

Language: English

Topic: Decision-Making and Behavioral Economics

Subfield: General Decision Sciences

Field: Decision Sciences

Domain: Social Sciences

Open Access status: green

Funders: Yale University, Brown University, University of Chicago, Booth School of Business, University of Chicago

OpenAlex ID: W1593036285

Cites: 59

Cited by: 26

Related to: 10