Invest Now, Drink Later, Spend Never: The Mental Accounting of Delayed Consumption

Abstract:     
Monetary transactions in which consumption is temporally separated from purchase naturally lend themselves to multiple frames and to alternative accounting schemes, which nonetheless maintain a modicum of discipline and authenticity. We investigate some of the relevant accounting rules, and find that advanced purchases (e.g., a case of wine) are typically treated as "investments" rather than spending. At the same time, consumption of a good purchased earlier and used as planned (a wine bottle opened for dinner) is often coded as "free", or even as savings. However, when it is not consumed as planned (a bottle is dropped and broken), then the relevant account, long dormant, is resuscitated and costs associated with the event are perceived as the cost of replacing the good, especially if replacement is actually likely. Related phenomena and assorted implications are discussed.

Number of Pages in PDF File: 23

Keywords: Mental Accounting, Intertemporal Choice, Consumer Behavior

JEL Classification: D91, D12

working papers series