Nobel Prize inspired repost: Emotional Accounting

Inspired by Richard Thaler’s Nobel Prize in Economics, here are a couple of old posts about emotional accounting–research that complements his work on mental accounting:

Emotional Accounting Part 1 (complementing mental accounting):

My good friend Jonathan Levav and I published a paper in the Journal of Marketing Research that examines how people’s feelings about money influence their consumer choices.  The abstract pretty much says it all:

Mental accounting posits that people track their expenditures using cognitive categories or “mental accounts.” The authors propose that this cognitive process can be complemented by an approach that examines how feelings about a sum of money, or the money’s “affective tag,” influence its consumption. When people receive money under negative circumstances, this tag can include a negative affect component, which people aim to reduce by engaging in strategic consumption. The authors investigate two such strategies, laundering and hedonic avoidance, and demonstrate their effect on consumption of windfalls. The authors find that people avoid spending their negatively tagged money on hedonic expenditures and prefer to make utilitarian or virtuous expenditures to reduce, or “launder,” their negative feelings about the windfall. The authors call this tagging process and strategic consumption “emotional accounting.”

However, if you don’t want to read. you can watch a “Faculty Focus” video made by employer, the Leeds School of Business.  Here is the first video, which gives an overview of the paper:

Emotional Accounting Part 2: The Laundering Effect:

A second video goes in depth about the “Laundering Effect”:

Download the paper HERE.

Levav, J., & McGraw, A.P. (2009). Emotional accounting: How feelings about money influence consumer choice.  Journal of Marketing Research, 46, 66-80.