Managing Mental Accounts: Payment Cards and Consumption Expenditures

Michael Gelman and Nikolai Roussanov

No 31613, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D01 D12 D31 D91 D99 G02 G40 G41 G5 G50 G51 G53 (search for similar items in EconPapers)
Date: 2023-08
New Economics Papers: this item is included in nep-ban, nep-cbe and nep-pay
Note: AG AP CF EFG LS ME
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Published as Michael Gelman & Nikolai Roussanov & Lauren Cohen, 2024. "Managing Mental Accounts: Payment Cards and Consumption Expenditures," The Review of Financial Studies, vol 37(8), pages 2586-2624.

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Journal Article: Managing Mental Accounts: Payment Cards and Consumption Expenditures (2024)
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