Effects of Spikes in the Price of Gasoline on Behavioral Intentions: A Mental Accounting Explanation
33 Pages Posted: 9 Feb 2011
Date Written: February 7, 2011
In recent years gasoline prices have spiked in response to world events, only to fall again within weeks or months. Anecdotal evidence suggests that these price fluctuations have a substantial impact on consumers’ planned spending and their overall perceptions of financial well-being. We propose that consumers’ behavioral intentions in response to these spikes are driven in part by how consumers mentally account for the fluctuations in gasoline prices. Specifically, we contend that people allocate sharp increases in the price per gallon of gasoline to a comprehensive mental account. As a result, such increases affect consumers’ perceptions of their overall cost of living and have far-reaching effects on their planned spending. These predictions are tested in three experiments. The paper concludes with a discussion of the theoretical and applied implications of the results.
Keywords: pricing, energy, gasoline, gas, consumer behavior, judgment and decision making, mental accounting
JEL Classification: C91, M31, D12
Suggested Citation: Suggested Citation