Publications
Publications
- 2007
- HBS Working Paper Series
Mental Accounting and Small Windfalls: Evidence from an Online Grocer
By: Katherine L. Milkman, John Beshears, Todd Rogers and Max H. Bazerman
Abstract
We study the effect of small windfalls on consumer spending decisions by examining the purchasing behavior of a sample of online grocery shoppers over the course of a year. We compare the purchases customers make when redeeming a $10-off coupon they received from their online grocer with the purchases the same customers make when shopping without a coupon. Controlling for customer fixed effects and other relevant variables, we find that grocery spending increases by $1.59 with the use of a $10-off coupon. In addition, even though the receipt of a $10-off coupon does not correspond to a meaningful increase in wealth, the extra spending associated with the redemption of such a coupon is focused on "marginal" grocery items, or grocery items that a customer does not typically buy. These findings are consistent with a simple mental accounting model but are not consistent with the standard permanent income or lifecycle theory of consumption.
Keywords
Citation
Milkman, Katherine L., John Beshears, Todd Rogers, and Max H. Bazerman. "Mental Accounting and Small Windfalls: Evidence from an Online Grocer." Harvard Business School Working Paper, No. 08-024, September 2007. (Revised March 2008.)