Study On Household Consumption Structure From The Theory Of Mental Accounting

The hypothesis of rational economic man is the foundation of traditional consumption theory.However,the economic anomalies and people's irrational behaviors that cannot be ignored empirically promote the development of behavioral economics.Mental Accounts,account is one of the basic viewpoints of behavioral economy,which was developed by Richard Thaler(1980).It can be described graphically as each individual has an invisible account book,like a corporate financial report,only used to organize,evaluate and track the financial activities of cognitive behavior,then mental accounts actually talking about people categorize wealth according to needs or biases,leading to irrational behavior.Firstly,from a long-term perspective,the relationship between income and consumption in China still conforms to the basic law of consumption theory of Keynes and Engel's coefficient: the total consumption expenditure of residents increases with the growth of income,while the proportion of food expenditure in the consumption structure decreases accordingly.Subsequently,through the analysis of cross-sectional data of 31 provinces and regions,it was found that the principal component analysis results were relatively consistent from 2014 to 2018,the change of consumption structure was a relatively slow process,and the clustering results showed that the consumption structure of regions with high economic level was more similar.The main contribution of this paper is that heterogeneous wealth or income from different sources has an effect on consumption and consumption structure,which is essentially the research category of psychological account.Psychological account is the micro basic cause of this external behavior,which is more suitable to explain the uncertainty of individual consumption in the micro level.Empirical analysis was conducted using five period panel data from the fifth China Family Panel Studies(CFPS)from 2010 to 2018.At first,Thaler's Behavioral Life-Cycle hypothesis was tested that the marginal propensity to consume is typically highest out of income.Then,the threshold effect was tested with per capita income as the threshold variable.The three subsamples divided by poverty line and average line showed that the Mental Accounts with different incomes were indeed different.Finally,this paper considers Effects of heterogeneous wealth on different types of consumption,and thenexplained variable defined as a ratio necessary consumption to discretionary consumption indirect measuring size of Mental Accounts,shows that the increase of wages and household business income will be inclined to the basic cost of living,while the increase of property income and transfer income more inclined to ascend and enjoy spending...