As Expected, There Are Unexpected Costs

Study Context

Research suggests that mental accounting and budgeting can directly influence decision making (Hastings and Shapiro 2013, Thaler 1999, Heath 1995). Specifically, the categories used may have an effect on expenditure. Cheema and Soman (2006) provide further evidence: An ambiguous purchase that fits into one or more mental accounts is more likely to be incurred than an unambiguous expense that is constrained either by existing budgets or by previously constructed accounts. The current proposal seeks to address a fundamental question: How does the inclusion of a category that accounts for miscellaneous one-time costs (i.e., different one-time costs that happen every month and are therefore hard to categorize) affect savings? More generally, are mental accounts malleable?

Study Design

The researchers ran an exploratory survey study with 100 individuals through Amazon Mechanical Turk, asking whether individuals budgeted and if so, what categories they used in their budgeting. For people who did not budget, the researchers also asked what categories people would generate when spontaneously asked to do so.

Results and Policy Lessons

The researchers find that people with existing budgets typically do not have a category for miscellaneous, one time costs, and that people who are asked to spontaneously create budget categories do not create it. As a next step, the researchers aim to conduct a lab study with undergraduate student participants and to potentially partner with budgeting app companies (e.g., Mint) to run a potential field experiment.