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

23 Pages Posted: 17 May 2006  

Eldar Shafir

Princeton University

Richard H. Thaler

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: May 2006

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.

Keywords: Mental Accounting, Intertemporal Choice, Consumer Behavior

JEL Classification: D91, D12

Suggested Citation

Shafir, Eldar and Thaler, Richard H., Invest Now, Drink Later, Spend Never: The Mental Accounting of Delayed Consumption (May 2006). Available at SSRN: https://ssrn.com/abstract=901830 or http://dx.doi.org/10.2139/ssrn.901830

Eldar Shafir (Contact Author)

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544
United States

Richard H. Thaler

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-5208 (Phone)
773-702-0458 (Fax)

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