Are “fun” sources of windfalls destined to be spent hedonistically?

Abstract

Recently, Richard Thaler was awarded a Nobel Prize for his work in developing Behavioral Economics. While much of economics assumes that people act rationally, Areily (2008), expanding on Thaler’s body of work, proves that we are not only often irrational, but we are predictably irrational. When an interviewer asked Thaler how he would spend the roughly $1.1 million in prize money, he responded, “This is quite a funny question.” Thaler added, “I will try to spend it as irrationally as possible.” We know that affective tags for money exist but what specifically are those affective tags? More specifically still, is one of those tags for sources of income “fun,” and if so, does that affect whether the money will be spent on fun? Classical economics would assume that satisfaction comes from the consumption of goods and services, that money is a medium of exchange, and that the source of that medium of exchange does not enter into the choice of the goods or services consumed. Thaler’s (1999) works show that people create mental accounts, indicating that the source of the money may not be as completely irrelevant as classical economics predicted. This is important because where irrational behavior is suboptimal behavior, if we can anticipate it, we can construct environments to support better choices. We find that fun sources of income are significantly more likely to be spent on fun expenditures. However, as the amount of the windfall increases, the amount spent on fun levels off, indicating that this affect may be bounded. We were unable to find statistically significant support that more “adult” sources of income are more likely to be spent on more adult uses, but money from adult sources was significantly more likely to be invested. This is important because understanding more about affective tags and how they affect decisions to use money, we become better predictors of irrational behavior.