Title:
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Mental accounting and public choice
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Evidence from the consumer behaviour literature show that people like private costs to either precede or occur at the same time as the benefits. No one wants to pay for a vacation after it has become a memory, or a dishwasher after it has gone to the tip. Likewise, no one wants to work for a salary that has already been spent. It is likely that similar preferences exist for communal expenditures. With this in mind, this thesis presents a series of studies into how ordinary citizens make (or want to make) communal financial decisions (i.e. cost-benefit trade-offs). The aim is to learn if people’s communal preferences are similar to their personal preferences; and if the prospective double-entry mental accounting model (Prelec & Loewenstein, 1998) – a well-supported theory of individual preferences – can explain these communal preferences. Eight studies (six communal and two personal) confirmed that people use similar mental rules to the ones prescribed by the double-entry model to make financial choices on a communal (and personal) level. That is, people prefer to have the communal costs to either precede or occur at the same time as the benefits; and when either is not possible, to minimise the temporal distance between the two. These preferences are observed for monetary gains and losses; for decisions that have a direct impact on the decision maker, or no impact at all; and for choices made between and within participants. These findings provide valuable insights for policy makers who are keen to design public finance policies that are efficient and have public support.
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