The Relative Size of Windfall Income and the Permanent Income Hypothesis

Keeler, James P.; James, William L.; Abdel‐Ghany, Mohamed

doi:10.1080/07350015.1985.10509452

Cited by 29 publications

(18 citation statements)

References 8 publications

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“…Propensity to spend windfall income is larger than that to regular income and the former decreases as the windfall size increases (Bodkin, 1959;Bird & Bodkin, 1965;Keeler et al 1985). Baker et al (2007) show strong response of consumption to the receipt of dividends once effects of stock return is controlled for.…”

Section: Traders' Psychologymentioning

confidence: 99%

Stocks’ pricing dynamics and behavioral finance: A review

Sinha¹

2015

10.5267/j.msl

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In a brief review of the literature on stocks' pricing, the study shows that information vis-à-vis noise serves critical roles in the equilibrium process. It is dynamic in nature and there are different infiltrating aspects from the standard finance to behavioral finance points of views. The aspects of market efficiency, fundamental risk, noise traders' risk, and implementation costs make the stock markets noisy and thereby, limit the arbitrage opportunity of informed traders. Investors' psychological bases viz., belief and preferences contribute more in the equilibrium process. Beliefs include representativeness, conservativeness, and anchoring, availability biases, optimism and wishful thinking, overconfidence, and herd behavior tendency on the part of the investors. On the preferences, investors are influenced by disposition effect, prospects based on reference points, mental accounting, ambiguity aversion, and self control.The study explores the empirical literature also and reviews the six puzzles in the standard finance. Finally, the work identifies a few research gaps to be addressed in the literature.Growing Science Ltd. All rights reserved. 5

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Section: Traders' Psychologymentioning

confidence: 99%

Stocks’ pricing dynamics and behavioral finance: A review

Sinha¹

2015

10.5267/j.msl

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“…A series of papers studying windfalls that were considerably larger than those analyzed in this paper demonstrated that households have a higher propensity to consume out of windfall income than out of regular income and that this propensity to consume decreases as the size of a windfall increases (Bodkin, 1959;Kreinin, 1961;Bird and Bodkin, 1965;Doenges, 1966;Landsberger, 1966;Abdel-Ghany et al, 1983;Keeler et al, 1985). Another set of empirical studies has analyzed the response of consumption to anticipated changes in income rather than unanticipated wealth shocks.…”

Section: Related Empirical Literaturementioning

confidence: 99%

Mental Accounting and Small Windfalls: Evidence from an Online Grocer

Milkman

Beshears

2008

SSRN Journal

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a b s t r a c tWe study the effect of small windfalls on consumer spending decisions by comparing the purchases online grocery customers make when redeeming $10-off coupons with the purchases they make without coupons. Controlling for customer fixed effects and other variables, we find that grocery spending increases by $1.59 when a $10-off coupon is redeemed. The extra spending associated with coupon redemption is focused on groceries that a customer does not typically buy. These results are consistent with the theory of mental accounting but are not consistent with the standard permanent income or lifecycle theory of consumption. While the hypotheses we test are motivated by mental accounting, we also discuss some alternative psychological explanations for our findings.

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“…Some experiments find that there is no effect of real effort tasks on decisions (Clark, 1998(Clark, , 2002Rutström and Williams, 2000;Ball et al, 2001), others find that participants act more self-interested or have a higher willingness to take risks (Keeler et al, 1985;Thaler and Johnson, 1990;Keasey and Moon, 1985;Cherry et al, 2002). Even though it is possible that the real effort task has no effect on subjects' contributing behavior, to us it seems reasonable to allocate the endowments based on the results from a real effort task because how subjects obtain their endowments might affect the expression of social approval.…”

Section: Social Approval and Public Goodsmentioning

confidence: 99%

Reaching for the Stars: An Experimental Study of the Consumption Value of Social Approval

Greiff

Paetzel

2012

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe present a theoretical model of a linear public good game in which heterogeneous players express social approval after observing contributions. The model explains how social approval is expressed and predicts positive contributions if subjects have a preference for social approval. Using a controlled laboratory experiment we test our model. In the experiment, subjects conduct computerized tasks that require substantial effort resulting in endowments from which contributions can be made to a linear public good. After observing others' contributions subjects express social approval. Our main hypothesis is that subjects have a preference for social approval so that the expression of social approval will increase contributions, even if reputation building is impossible. We vary the information available to subjects and investigate how this affects the expression of social approval and individual contributions. Our main finding is that the expression of social approval significantly increases contributions. However, the increase in contributions is smaller if additional information is provided, suggesting that social approval is more effective if subjects receive a noisy signal about others' contributions.JEL Codes: C72, C91, D71, D83. Keywords: Experimental Economics, Linear Public Good Games, Non-monetary Incentives, Social Approval. * Corresponding author. Department of Economics, Justus Liebig University Giessen, Germany. Email: matthias.greiff@wirtschaft.uni-giessen.de, www.matthiasgreiff.net. We thank Max Albert, Nina Bobkova, Sebastian Finckler, Andreas Hildenbrand, Susanne Neckermann, Karim Sadrieh, Carolin Schürg, Stefan Traub and Hongyan Yang, the participants of the economics research seminar at the University Giessen, the public economics research seminar (Schumpeter School, Wuppertal), economics brown bag seminar at the University of Bremen and the participants of the ESA world meeting 2011 in Chicago for helpful comments, discussions and encouragement. All remaining errors are our own. This work was supported by a grant from the "Verein zur Förderung des Fachbereichs Wirtschaftswissenschaft der Universität Bremen und dessen Zusammenarbeit mit der Bremer Wirtschaft" (wiwib. e.V.).

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The Relative Size of Windfall Income and the Permanent Income Hypothesis

Cited by 29 publications

References 8 publications

Stocks’ pricing dynamics and behavioral finance: A review

Stocks’ pricing dynamics and behavioral finance: A review

Mental Accounting and Small Windfalls: Evidence from an Online Grocer

Reaching for the Stars: An Experimental Study of the Consumption Value of Social Approval

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