Working Paper: NBER ID: w31613
Authors: Michael Gelman; Nikolai Roussanov
Abstract: Does mental accounting matter for total consumption expenditures? We exploit a unique setting in which individuals exogenously received a new credit card, without requesting one. Using random variation in the time of receipt we show that individuals temporarily increase total consumption expenditure by making purchases with the new card without reducing spending on the others. We do not observe a corresponding increase in indebtedness. Total consumption expenditure rises even for the least liquidity-constrained individuals. The evidence is consistent with consumers treating methods of payment as nonfungible budget categories, as suggested by models of mental accounting and narrow bracketing.
Keywords: No keywords provided
JEL Codes: D01; D12; D31; D91; D99; G02; G40; G41; G5; G50; G51; G53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Receiving a new credit card (E40) | Increase in total consumption expenditure (E20) |
| Receiving a new credit card (E40) | Spending on existing cards remains unchanged (G50) |
| Increase in total consumption expenditure (E20) | Does not lead to increase in debt balances (H63) |
| Receiving a new credit card (E40) | Treated as a separate mental account (G41) |