Abstract
AbstractCredibly representing category-of-goods mental accounting in an intertemporal optimisation framework is notoriously difficult, as this modelling approach imposes interrelations between the demand for different categories through first-order conditions. This breaks the principle of nonfungibility, contrary to the rationale of mental-accounting theory. Proofs that using intertemporal optimisation is futile in modelling this kind of behaviour are provided, and an alternative is developed: a procedural-behavioural merger of mental accounting and categorisation theories. The merger is necessary to enhance mental-accounting theory, which by itself does not inform about how mental budgets are formed, what they include and how money is spent from various accounts. A classification of six basic consumer types was devised, basing on the differences between their mental-accounting systems and variations of changes of expenditure in response to fluctuations of net disposable income and other possible stimuli. Representing the consumer problem as a behavioural procedure including spending on nondurable and frequently-bought durable goods as well as decisions whether or not to purchase very expensive durable goods, such as houses and flats, allows to model real-world features such as infrequent purchases and rare debt-taking. The devised working-life cycle models of consumer behaviour are consistent with microeconomic evidence on consumption, including those features that are not accounted for by various versions of the permanent income or buffer-stock models.
Publisher
Springer Science and Business Media LLC
Subject
Computer Science Applications,Economics, Econometrics and Finance (miscellaneous)
Reference46 articles.
1. Abeler, J., Marklein, F (2017). Fungibility, labels, and consumption. Journal of the European Economic Association, 15(1), 99–127. https://doi.org/10.1093/jeea/jvw007. ISSN: 1542-4766, 1542-4774.
2. Altman, M (2017). A bounded rationality assessment of the new behavioral economics. Routledge handbook of behavioral economics (pp. 179–193). Taylor & Francis Group: London New York, Routledge.
3. Antonides, G., Manon de Groot, I., & Fred van Raaij, W. (2011). Mental budgeting and the management of household finance. Journal of Economic Psychology, 32(4), 546–555. https://doi.org/10.1016/J.JOEP.2011.04.001. ISSN: 0167-4870.
4. Boug, P., Cappelen, Å., Jansen, ES., & Swensen, AR. (2021). The consumption euler equation or the keynesian consumption function? Oxford Bulletin of Economics and Statistics, 83(1), 252–272.
5. Caballero, RJ. (1993). Durable goods: An explanation for their slow adjustment. Journal of Political Economy, 101(2), 351–384. https://doi.org/10.1086/261879. ISSN: 0022-3808.