Mental Money Laundering: A Motivated Violation of Fungibility
71 Pages Posted: 5 Sep 2020 Last revised: 8 Sep 2020
Date Written: July 22, 2020
People exploit flexibility in mental accounting to relax psychological constraints on spending. Four studies demonstrate this in the context of moral behavior. The first study replicates prior findings that people donate more money to charity when they earned it through unethical versus ethical means. However, when the unethically-earned money is first “laundered”––the cash is physically exchanged for the same amount but from a different arbitrary source—people spent it as if it was earned ethically. This mental money laundering represents an extreme fungibility violation: exchanging “dirty” money for the same sum coming from a “clean” source significantly changed people’s propensity to spend it prosocially. The second study demonstrates that mental money laundering generalizes to cases in which ethically and unethically earned money is mixed. When gains from ethical and unethical sources were pooled, people spent the entire pooled sum as if it was ethically earned. The last two studies provide mixed support for the prediction that people actively seek out laundering opportunities for unethically earned money, suggesting partial sophistication about these effects. These findings provide new evidence for the ease with which people can rationalize misbehavior, and have implications for consumer choice, corporate behavior and public policy.
Keywords: Mental accounting; moral behavior; source dependence; money laundering
JEL Classification: D01, D03, D64
Suggested Citation: Suggested Citation