Empirical Verification Of Mental Accounting Theory

In traditional western economics,people have always been regarded as "rational man",which means that all decisions made by people or enterprises are based on the pursuit of maximizing individual utility or maximizing corporate profits.However,after the 1980s,traditional economics got into trouble explaining some real-world problems.At this time,economists represented by Richard H.Thaler questioned the"rational man" hypothesis and advocated that psychology and sociology should be included in economic research.Mental Account Theory proposed by Thaler has become one of the important contents in behavioral economics.In traditional economics,all kinds of income can be indistinguishable and replaceable,yet Mental Account Theory holds that people will be categorized according to different sources or types of income to form a special consuming habits.To further study the existence of Mental accounting of Chinese residents,this article will try to explore the following issues based on household micro data:Firstly,whether residents have set up Mental accounting for various types of income,namely wage income,operating income,property income and transfer income;Secondly,whether "windfall" will promote consumption greatly;Thirdly,whether residents will set up Mental accounting for wealth based on the difference in wealth mobility.The structure of this paper is as follows:The first chapter is an introduction that includes the research background and significance,research contents and methods,ideas and frameworks,the innovations and shortcomings of this paper.The second chapter introduces the review of domestic and foreign literatures,including the development history and application of Mental Accounting Theory,the review of the impact of different types of income on consumption and the review of the Wealth Effect.Chapter 3 introduces some major consumption theories and main contents of Mental Accounting Theory.Chapter 4 analyzes the current situation of Chinese income and consumption from 2010 to 2016 based on macro and micro data.Chapter 5 introduces the Empirical analysis process with data from China Family Panel Studies(CFPS)from 2010 to 2016,which mainly includes two parts The first part will verifies the existence of the Income Account,studies the impact of different incomes on various types of consumption,and the disposal of"windfall"-whether this income will stimulate consumption or not.The second part studies the Wealth Account,including verifying the existence of the Wealth Effect of housing assets,comparing the Wealth Effect of Housing asset and the Wealth Effect of Financial asset,and analyzes and compares the differences of the consumption of financial assets between families with different ages of heads of households.The final chapter of this paper includes conclusions and policy recommendations.The final chapter of this article includes the conclusion and policy recommendations.According to the empirical results,the following four conclusions are drawn:Firstly,different types of income have different effects on total consumption and partial consumptions.Chinese residents may set up Income accounting;Secondly,for "windfall",residents prefer to rational consumption instead of conspicuous consumption;Thirdly,Housing asset has unapparent Wealth Effect,which is much smaller than the Wealth Effect of Financial asset,Chinese residents may set up Wealth Account;Fourthly,the Wealth Account between families with different ages of heads of households is different,and household consumption demand is greater when the heads of households are less than 60 years old.