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Title:Riches to Rags Every Month? : The Fall in Consumption Expenditures Between Paydays PDF Logo
Authors:Huffman, David
Barenstein, Matias
Issue Date:2004
Series/Report no.:IZA Discussion paper series 1430
Abstract:This paper finds declining consumption expenditure between paydays, for a typical household in the working population of the UK. The magnitude is inconsistent with exponential time preference, but compatible with quasi-hyperbolic discounting. However, the hyperbolic model predicts that credit constraints drive the decline, and we find only mixed evidence in this regard. We also observe a method-of-payment result that suggests a role for mental accounting: households choose declining cash spending but flat credit-card spending over the pay period. We propose an alternative explanation for the results, based on cognitive costs of budgeting and perceptual biases, rather than self-control problems.
Subjects:consumption
hyperbolic-discounting
payday
mental accounting
reference-dependent preferences
credit cards
JEL:D12
D11
J33
B49
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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