Effects of Mental Accounting on Intertemporal Choice

Karlsson, N., Garling, T., & Selart, M. (1997). Effects of Mental Accounting on Intertemporal Choice. Göteborg Psychological Research, 27, No 5.

17 Pages Posted: 17 Oct 2013

See all articles by Niklas Karlsson

Niklas Karlsson

Goteborg University, Faculty of Social Sciences, Department of Psychology

Tommy Garling

University of Gothenburg

Marcus Selart

Norwegian School of Economics (NHH) - Department of Strategy and Management

Date Written: May 20, 1997

Abstract

Two experiments with undergraduates as subjects were carried out with the aim of replicating and extending previous results showing that the implication of the behavioral life-cycle hypothesis (H. M. Shefrin & R. H. Thaler, 1988) that people classify assets in different mental accounts (current income, current assets, and future income) may explain how consumption choices are influenced by temporary income changes. In both experiments subjects made fictitious choices between paying for a good in cash or according to a more expensive installment plan after they had received an income which was either less, the same, or larger than usual. In Experiment 1 subjects were supposed to have savings so that the total assets were equal, whereas in Experiment 2 the total assets varied. The results of both experiments supported the role of mental accounts in demonstrating that subjects were unwilling to pay in cash after an income decrease even though they had access to saved money. Thus, in effect they chose to pay more for the good than they had to. Indicating a need for further refinement of the concept of mental account, choices to pay in cash after an income decrease tended to be more frequent when the consumption and savings motives were compatible than when they were incompatible. Furthermore, increasing the total assets made subjects more willing to pay in cash after an income decrease.

Suggested Citation

Karlsson, Niklas and Garling, Tommy and Selart, Marcus, Effects of Mental Accounting on Intertemporal Choice (May 20, 1997). Karlsson, N., Garling, T., & Selart, M. (1997). Effects of Mental Accounting on Intertemporal Choice. Göteborg Psychological Research, 27, No 5., Available at SSRN: https://ssrn.com/abstract=2341080

Niklas Karlsson

Goteborg University, Faculty of Social Sciences, Department of Psychology ( email )

P.O. Box 500
Goteborg, 40530
Sweden

Tommy Garling

University of Gothenburg ( email )

Viktoriagatan 30
Göteborg, 405 30
Sweden

Marcus Selart (Contact Author)

Norwegian School of Economics (NHH) - Department of Strategy and Management ( email )

Breiviksveien 40
N-5045 Bergen
Norway
+47 55 95 96 95 (Phone)

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