Consumers' Mental Representation of Expenditures: Implications for Spending and Savings Decisions.

This article investigates how consumers mentally represent expenditures and how these representations influence budgeting and spending behavior. It proposes that people organize expenditures in hierarchical taxonomies—nested categories ranging from specific to general—and that the taxonomic distance between items predicts how consumers adjust their spending after deviating from their budgets. Across multiple studies involving sorting tasks, surveys, incentivized choices, and analysis of 6.5 million grocery shopping trips over 12 years, the research finds consensus and stability in consumers' hierarchical representations and shows that spending adjustments are greater for items closer in the taxonomy, independent of substitutability or complementarity. These findings extend mental accounting theory beyond binary category distinctions and have implications for marketing strategies, budgeting tools, and understanding consumer financial decision-making.