2007
Working Paper
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

Format:Print
| Language:English
| Pages:42

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

Spending; Consumer Behavior; Mathematical Methods; Food and Beverage Industry; Retail Industry

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.)