Mental Accounting And Household Consumption Choices

In the classics of western consumption theory, regardless of Keynes’s Absolute Income Hypothesis, Duesenberry’s Relative Income Hypothesis, Modigliani’s Life-cycle Hypothesis or Friedman’s Permanent Income Hypothesis, each kind of Consumer Demand Theory emphasized that the income plays a decisive role on consumption. However, these scholars investigate the income’s effect on consumption based upon the traditional consumption theory (such as the permanent income hypothesis, life-cycle hypothesis and so on); while the factor of assets is not considered. In fact, this point is important for the choices of household consumption.In accordance with Levin, this study, on the one hand, will further investigate the effect of assets variable on household consumption in China; on the other hand, will have an in-depth study on the relationship between the choices of household consumption and wealth’s different sources.Based on the above ideas, this paper proposes two hypotheses, first, the sources of income has an impact on consumer choice. Wealth from different sources is incorporated into different accounts; at the same time, different consumption and expenditure categories are classified as a different account. Under different mental accounts, the consumer choices will be different. Second, assets also havevital effects on consumption; moreover, the assets’effect on consumer choices varies with the different categories.According to the statistical analysis of data about households of Jiangsu Province in2009, it indicates that income source has a significant effect on household consumer choice, marginal consumption tendencies are affected by different income sources. On the whole, marginal consumption tendencies of cash income (0.173) are lower than that of non-cash income (0.633). While in specific income sources, marginal consumption tendencies of non-borrowing cash income is the highest (0.729). Different mental accounts with different consumer choices, meanwhile, different mental accounts are divided according to the income sources.Assets would also influence the household consumer choices. In the analysis of dividing assets into fixed and circular two parts. For household consumer choices, fixed assets have significant effect, while circular assets’ effect is not distinct. However, from the view of specific categories of consumption,fixed asset for consumer health care’s impact is not significant, but circular assets’ effect on such kind of parts is obvious, for instance, clothing,equipment, culture education, household consumption,entertainment consumption as well as consumer health care.Owing to Chinese national condition, the classification of rural household consumption’s mental account may have some shortcomings. There are might some inaccuracy on the selection of specific variable.To a certain extent, all of those will cause deviations on traditional statistical, but in the following days, we still can continue the further study if the sufficient conditions are satisfied.