TAILIEUCHUNG - Mental Accounting and Consumer Choice: Evidence from Commodity Price Shocks

Microseismic (passive) seismic monitoring was conducted at Weyburn to monitor the dynamic response of the reservoir rock matrix to CO2 injection (., stress release due to injectioninduced deformation) and assess the level of induced seismicity in regard to safety of existing surface infrastructure and as an alternative means of mapping the spread of CO2 within the reservoir. An array of eight, three-component geophones was permanently installed just above the oil reservoir, which is located at approximately 1,450-meter depth. Microseismic (passive) seismic monitoring has been conducted semi-continuously since mid- 2003. During this time, microseismicity has been limited to a few small microseisms on average per month (Monea et al., 2008). In the West Pearl Queen reservoir, SNL. | Mental Accounting and Consumer Choice Evidence from Commodity Price Shocks Justine Hastings Brown University and NBER Jesse M. Shapiro Chicago Booth and NBER First Version March 2011 This Version July 2012 Abstract We formulate a test of the fungibility of money based on parallel shifts in the prices of different quality grades of a commodity. We embed the test in a discrete-choice model of product quality choice and estimate the model using panel microdata on gasoline purchases. We find that when gasoline prices rise consumers substitute to lower octane gasoline to an extent that cannot be explained by income effects. Across a wide range of specifications we consistently reject the null hypothesis that households treat gas money as fungible with other income. We evaluate the quantitative performance of a set of psychological models of decision-making in explaining the patterns we observe. We also use our findings to shed light on extant stylized facts about the time-series properties of retail markups in gasoline markets. Keywords fungibility income effects consumer psychology gasoline JeL D12 L15 Q41 D03 We are grateful for comments from Nick Barberis Matt Lewis Erich Muehlegger Justin Sydnor and seminar audiences at the NBER Yale University the University of Chicago Northwestern University Cornell University UC Berkeley and Columbia University. This work was supported by the Centel Foundation Robert P. Reuss Faculty Research Fund at the University of Chicago Booth School of Business the Yale University Institution for Social and Policy Studies and the Brown University Population Studies Center. We thank Eric Chyn Sarah Johnston Phillip Ross and many others for outstanding research assistance. Atif Mian and Amir Sufi generously provided cleaned zipcode-level income data originally obtained from the IRS. E-mail jus-tine_hastings@ . 1 1 Introduction Neoclassical households treat money as fungible a dollar is a dollar no matter

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