SYMPOSIA SUMMARY Influences on Spending: Mental Accounts and Self-Control

SESSION OVERVIEW Consumer spending is an under-researched area, which is unfortunate in light of mortgage foreclosures recently hitting an all time high (Knox 2007) and the American personal savings rate hitting a 73 year low (Associated Press 2007). Economists have traditionally assumed that consumers allocate their spending to rationally optimize their utility and that money is fungible. In contrast, the behavioral decision theory literature provides strong evidence that consumers employ a system of mental accounts. Considering the current trend towards overspending, it is important to understand whether consumers’ mental accounting practices contribute to the problem or whether mental accounts are an effective method of self-control as has been previously suggested (e.g., Thaler 1985; Thaler and Shefrin 1981). This session brings together a set of respected researchers to provide insight into the conditions under which mental accounting practices result in overspending vs. when they function as a selfcontrol mechanism. The first two presentations examine mental accounting practices that are related to overspending. The first paper, co-authored by Juliet Zhu, Jack Chen, and Srabana Dasgupta (UBC), extends research on the endowment effect into the domain of multiple transactions by incorporating the notion of limited cognitive resources. Specifically, they show that individuals who are trading in a car pay a higher net price because they focus some of their limited resources on negotiating their trade-in rather than the sales price of the car. The second paper, authored by Amar Cheema (Wash U), finds that increases in income and assets affect purchase in a similar manner, while decreases in income decrease purchases more than asset value decreases. This research also shows that consumers tend to discount uncertain decreases, (but not uncertain increases) and that this tendency is correlated with debt. In contrast, the third and fourth presentations examine consumers’ use of mental accounting in an attempt to control their spending. The third presentation, co-authored by Karen Stilley, Jeff Inman (Pittsburgh) and Kirk Wakefield (Baylor), shows that consumers anticipate the occurrence of unplanned purchases and build these expectations into their mental budget for the grocery trip. The fourth presentation, co-authored by Leonard Lee (Columbia), Ziv Carmon (INSEAD) and Ravi Dhar (Yale), extends the work of Trope and Fishbach (2000) to show that priming shoppers to be aware of the potential for high spending activates counteractive self-control mechanisms. While most prior studies in the mental accounting literature rely on hypothetical choices in a lab setting, the papers in this session cross methodological boundaries to provide robust results. Studies range from lab experiments (Zhu et al. and Cheema) to field studies (Stilley et al. and Lee et al.) to analysis of secondary data sets (Zhu et al. and Cheema). Providing strong external validity, each paper in our symposium supports findings with real world data. From a theoretical perspective, this session builds a bridge between research in mental accounting and more traditional psychological theories by incorporating research in cognitive processing (Einstein and McDaniel 1987), counteractive self-control (Trope and Fishbach 2000), and in-store stimuli (i.e., Heilman et al. 2002; Bettman 1979). EXTENDED ABSTRACTS