Thaler: Mental Accounting and Consumer Choice

24 Marketing Science 27(1), pp. 15–25, © 2008 INFORMS

is being offer ed by the seller as a “suggested refer -

ence price.” Then a lower selling price will provide

positive transaction utility . In addition, inexperienced

buyers may use the SRP as an index of quality . W e

would expect to observe a large differ ential between

price and the SRP when both factors are present. The

SRP will be more successful as a refer ence price the

less often the good is purchased. The SRP is most

likely to serve as a proxy for quality when the con-

sumer has trouble deter mining quality in other ways

(such as by inspection). Thus, deep discounting rel-

ative to SRP should usually be observed for infr e-

quently purchased goods whose quality is hard to

judge. Some examples include phonograph cartridges

which usually sell at discounts of at least 50%, home

fur niture which is almost always “on sale,” and silver

ﬂatware where “deep discounting—selling merchan-

dise to consumers at 40% to 85% below the manufac-

turer ’s ‘suggested retail price’ has become widespr ead

in the industry .”

13

4.3. Budgeting Implications: A Theory of

Gift Giving

The analysis of budgeting rules suggests that category

and time speciﬁc shadow prices can vary . This implies

that individuals fail to undertake some inter nal arbi-

trage operations that in principle could increase util-

ity . In contrast, the standard theory implies that all

goods that are consumed in positive quantities have

the same marginal utility per dollar , and in the

absence of capital market constraints, variations over

time are limited by real interest rates. Observed pat-

ter ns of gift giving lend support to the current theory .

Suppose an individual G wants to give some recipi-

ent R a gift. Assume that G would like to choose that

gift which would yield the highest level of utility to R

for a given expenditure. (Other nonaltruistic motives

are possible, but it seems reasonable to start with this

case.) Then the standard theory implies that G should

choose something that is already being consumed in

positive quantities by R.

How does this compare with common practice?

Casual observation and some infor mal survey evi-

dence suggest that many people try to do just the

opposite, namely buy something R would not buy for

himself. Flowers and boxed candy are items that are

primarily purchased as gifts. “Gift shops” are ﬁlled

with items that are purchased almost exclusively as

gifts. Did anyone buy a pet rock for himself?

Once the restriction that all shadow prices be equal

is relaxed, the apparent anomaly is easily understood.

Categories that are viewed as luxuries will tend to

have high k ’s. An individual would like to have a

13

See Business Week , March 29, 1982. This example was suggested

by Leigh McAlister .

small portion of the forbidden fruit, but self-control

problems prevent that. The gift of a small portion

solves the problem neatly .

A simple test of the model can be conducted by the

reader via the following thought experiment. Suppose

you have collected $100 for a group gift to a depart-

ing employee. It is decided to give the employee some

wine since that is something the employee enjoys.

Suppose the employee typically spends $5 per bottle

on wine. How expensive should the gift wine be? The

standard theory says you should buy the same type

of wine currently being purchased. The current theory

says you should buy fewer bottles of more expensive

wine, the kind of wine the employee wouldn’t usually

treat himself to.

One implication of this analysis is that goods which

are priced at the high end of the market should

be marketed in part as potential gifts. This suggests

aiming the advertising at the giver rather than the

receiver . “Promise her anything but give her Arpege.”

The gift-giving anomaly refers to those goods in

categories with high k ’s. Individuals may also have

categories with low k ’s. Suppose I like to drink expen-

sive imported beer but feel it is too costly to buy

on a r egular basis. I might then adopt the rule of

drinking the expensive beer only on speciﬁc occa-

sions, such as at restaurants or while on vacation.

14

Advertisers may wish to suggest other occasions that

should qualify as legitimate excuses for indulgence.

One example is Michelob’s theme: “W eekends are

made for Michelob.” However , their follow-up cam-

paign may have taken a good idea too far: “Put a

little weekend in your week.” Lowenbrau’s ads stress

a different category , namely , what beer to serve to

company . “Here’s too good friends, tonight is some-

thing special   ” While impressing your friends is

also involved here, again the theme is to designate

speciﬁc occasions when the beer k should be relaxed

enough to purchase a high cost beer .

Another result of this analysis is that people may

sometimes pr efer to receive a gift in kind over a gift in

cash, again violating a simple principle of microeco-

nomic theory . This can happen if the gift is on a “for-

bidden list.” One implication is that employers might

want to use gifts as part of their incentive packages.

Some or ganizations (e.g., T upperware) r ely on this

type of compensation very heavily . Dealers are paid

both in cash and with a multitude of gift-type items:

trips, fur niture, appliances, kitchen utensils, etc. Since

most T upperware dealers are women who are second-

income ear ners, the gifts may be a way for a dealer to:

14

One bit of evidence that people on vacation adopt temporarily

low k ’s is that all resorts seem to have an abundance of gift and

candy shops. Some of their business, of course, is for gifts to bring

home, but while on vacation, people also seem to buy for them-

selves at these shops.