Consumers’ Mental Representation of Expenditures : Implications for Spending and Saving Decisions

People’s mental representation of expenditures is crucial to how they budget. We propose that much like how people represent natural objects, people represent expenditures in a hierarchical taxonomy. Across seven studies, we found evidence of a hierarchical representation of expenditures. We first recover people’s mental representation using a successive pile-sort method that asks people to form hierarchies of categories with common expenditures (e.g., rent, dining out, etc.). We found that there is consensus in people’s hierarchical representations of expenditures and that their representations are relatively stable over time. Further, we found that people’s adjustment in their spending behavior can be predicted by the distance between items in their representation. Specifically, when people overspent on an item, they were more likely to spontaneously adjust spending for items closer in representation than further. We examine this spontaneous adjustment behavior using both lab studies and field data with over 7-million grocery shopping trips. The findings highlight the connection between mental representation and consumer behavior, and emphasize the importance of studying cognitive representation in the context of consumption