Fungibility, labels, and consumption

Journal article

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 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. We first provide suggestive evidence from the field and then use a laboratory experiment to show this result in a tightly controlled environment. In the lab, 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: C91, C93, D01, H31, I38)

Authors: Abeler, J; Marklein, F

• Publication status: Published
• Peer review status: Peer reviewed
• Publisher: Oxford University Press
• Journal: Journal of the European Economic Association More from this journal
• Volume: 15
• Issue: 1
• Pages: 99–127
• Publication date: 2016-12-22
• Acceptance date: 2015-09-06
• DOI: 10.1093/jeea/jvw007
• EISSN: 1542-4774
• ISSN: 1542-4766
• Keywords: SBTMR