Document Type

Honors Paper

Advisor

David Chavanne

Publication Date

2024

Abstract

Mental accounting bias is the practice of people categorizing money and making financial decisions based on those categories without being explicitly cognizant of these groupings. Income sourcing is a type of mental accounting bias when people spend money differently based on how they came into possession of that money. This study focused on measuring various forms of income sourcing and their impact on spending behavior. In particular, this study analyzed how people make spending decisions when they have earned money in either a frivolous or a serious manner, and alternatively how people make spending decisions when they have either an expected or unexpected financial windfall. There are several other studies that have researched income sourcing in relation to serious and frivolous financial windfalls. In these studies, research has shown that people tend to spend their money in similar respects to how they earned the money. My study of frivolous/serious income sourcing, as expected, confirmed prior studies’ results. Importantly, my study found that this effect is present both when the income is expected and when it is unexpected. There are very few studies before this one that research the role of expectations in income sourcing. Contrary to expectations, this study found that expectations of income had no effect on how people chose to spend their money.

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The views expressed in this paper are solely those of the author.