Bonus of rebate?: the impact of income framing on spending and saving

All income increases a person's absolute wealth, but consumption decisions may be based more heavily on perceived changes in wealth. Change is computed by comparing a current state with a former state, and we predicted that people would be more likely to spend income framed as a gain from a current wealth state than income framed as a return to a prior state. Four experiments confirmed this prediction on people's memory for spending of a government tax rebate (Experiment 1), on unobtrusive self-report measures of spending an unexpected windfall (Experiments 2 and 3), and on actual spending on items for sale in a laboratory experiment (Experiment 4). These results can be explained, at least in part, by the reference points implied in the framing of income (follow-ups to Experiments 1 and 4). Discussion focuses on implications for the consumption of other commodities, assessments of risk, and government tax policies. Copyright © 2006 John Wiley & Sons, Ltd.