The Psychology of Windfall Gains

Arkes, Hal R.; Joyner, Cynthia A.; Pezzo, Mark V.; Nash, Justin M.; Siegel-Jacobs, Karen; Stone, Eric R.

doi:10.1006/obhd.1994.1063

Cited by 312 publications

(263 citation statements)

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“…For example, future research might investigate how GPDs affect customers' immediate spending behavior: customers might increase their spending in the case of winning the GPD owing to a perceived increase in their available budget, as proposed by literature on windfall gains (Arkes et al 1994). …”

Section: Limitations and Future Research Directionsmentioning

confidence: 99%

Gambled Price Discounts: A Remedy to the Negative Side Effects of Regular Price Discounts

Alavi

Bornemann

Wieseke

2015

Journal of Marketing

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In the context of price discounts, a special type of price promotion, in which savings depend on the outcome of a gamble and are thus uncertain, has recently achieved some popularity. The question arises as to whether such gambled price discounts (GPDs) incur the negative reference price effect—that is, a downward shift in customers’ internal reference price (IRP)—which is often associated with regular price discounts (RPDs). From several studies, including two longitudinal field experiments, the authors find that GPDs indeed alleviate the negative reference price effect: IRPs and actual repurchasing tend to be lower for RPDs than for GPDs and a no-discount control condition. Moreover, the authors explore the psychological underpinnings of these effects and show that the different consequences of GPDs versus RPDs on IRPs are more pronounced if information regarding product quality is limited. The authors demonstrate that findings are robust to variations of GPD discount levels and the probability of winning.

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Section: Limitations and Future Research Directionsmentioning

confidence: 99%

Gambled Price Discounts: A Remedy to the Negative Side Effects of Regular Price Discounts

Alavi

Bornemann

Wieseke

2015

Journal of Marketing

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“…By using an incentivized laboratory experiment, we exclude this possibility. Fourth, the only existing studies investigating consumption decisions in incentivized environments analyze how people spend a gift or a windfall gain (e.g., Bodkin 1959, Arkes et al 1994, Milkman & Beshears 2009). Most windfall gains are negligibly small compared to life-time wealth and should not alter spending behavior if customers treat wealth and windfall gain as fungible; but these studies find that people spend more after receiving a gift or windfall gain.…”

Section: Introductionmentioning

confidence: 99%

Fungibility, Labels, and Consumption

Abeler¹,

Marklein²

2016

Journal of the European Economic Association

109

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The focus for the Centre is research into individual and strategic decision-making using a combination of theoretical and experimental methods. On the theory side, members of the Centre investigate individual choice under uncertainty, cooperative and non-cooperative game theory, as well as theories of psychology, bounded rationality and evolutionary game theory. Members of the Centre have applied experimental methods in the fields of public economics, individual choice under risk and uncertainty, strategic interaction, and the performance of auctions, markets and other economic institutions. Much of the Centre's research involves collaborative projects with researchers from other departments in the UK and overseas. Fungibility of money is a central assumption in the theory of consumer choice: any unit of money is substitutable for another. This implies that the composition of income or wealth is irrelevant for consumption. We find in a field experiment that even in a simple, incentivized setup many subjects do not treat money as fungible.When a label is attached to a part of their budget, subjects change consumption according to the label. A controlled laboratory experiment confirms this result and further shows that subjects with lower cognitive abilities are more likely to violate fungibility. The findings lend support to behavioral models of narrow bracketing and mental accounting. One implication of our results is that in-kind benefits distort consumption more strongly than usually assumed.JEL classification: C91, C93, D01, H31, I38.

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“…Both psychologists and psychologically-minded economists, however, have questioned this assumption (Arkes et al, 1994;Fogel, 2004;Heath & Soll, 1996;Kahneman & Tversky, 1984;Shefrin & Thaler, 1990;Thaler, 1990;Warneryd, 1999). Few stimuli in the environment, after all, can be evaluated absolutely but instead must be evaluated in comparison to some standard or reference point.…”

Section: Introductionmentioning

confidence: 99%

“…People predict that they will be more likely to gamble money, for instance, when they have just experienced a gain in wealth than when they have just experienced a loss (the ''house-money'' effect; Thaler & Johnson, 1990). People are also more likely to spend unexpected or unearned income (i.e., windfalls) than to spend expected or earned income (Arkes, et al, 1994). And people predict that they would be more willing to spend 20 minutes of their time to save $5 on a $15 purchase than to save $5 on a $250 purchase (Kahneman & Tversky, 1984).…”

Section: Introductionmentioning

confidence: 99%

Bonus of rebate?: the impact of income framing on spending and saving

Epley

Mak

Idson³

2006

J. Behav. Decis. Making

103

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All income increases a person's absolute wealth, but consumption decisions may be based more heavily on perceived changes in wealth. Change is computed by comparing a current state with a former state, and we predicted that people would be more likely to spend income framed as a gain from a current wealth state than income framed as a return to a prior state. Four experiments confirmed this prediction on people's memory for spending of a government tax rebate (Experiment 1), on unobtrusive self-report measures of spending an unexpected windfall (Experiments 2 and 3), and on actual spending on items for sale in a laboratory experiment (Experiment 4). These results can be explained, at least in part, by the reference points implied in the framing of income (follow-ups to Experiments 1 and 4). Discussion focuses on implications for the consumption of other commodities, assessments of risk, and government tax policies.

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The Psychology of Windfall Gains

Cited by 312 publications

References 0 publications

Gambled Price Discounts: A Remedy to the Negative Side Effects of Regular Price Discounts

Gambled Price Discounts: A Remedy to the Negative Side Effects of Regular Price Discounts

Fungibility, Labels, and Consumption

Bonus of rebate?: the impact of income framing on spending and saving

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