Journal of Marketing ResearchVol. XLVI (February 2009), 668066

2009, American Marketing AssociationISSN: 0022-2437 (print), 1547-7193 (electronic)

*Jonathan Levav is Class of 1967 Associate Professor of Business,Columbia Business School, Columbia University (e-mail: jl2351@columbia.edu). A. Peter McGraw is Assistant Professor of Marketing,Leeds School of Business, University of Colorado (e-mail: peter.mcgraw@colorado.edu). They thank On Amir, Dan Ariely and his doctoralseminar students, Jim Bettman, Gita Johar, Eric Johnson, Jeff Larsen, JohnLynch, Michel Pham, Anastasiya Pochepstova, Janet Schwartz, RebeccaRatner, Bill Von Hippel, participants at various marketing seminars atwhich this work was presented, and especially the JMR review team forhelpful comments and suggestions. They also thank Rebecca Canate, MattLambuth, and Sarah Molouki for their research assistance. The authorscontributed equally to this work; order of authorship is alphabetical. DilipSoman served as associate editor for this article.

JONATHAN LEVAV and A. PETER MCGRAW*

Mental accounting posits that people track their expenditures usingcognitive categories or mental accounts. The authors propose that thiscognitive process can be complemented by an approach that examineshow feelings about a sum of money, or the moneys affective tag,influence its consumption. When people receive money under negativecircumstances, this tag can include a negative affect component, whichpeople aim to reduce by engaging in strategic consumption. The authorsinvestigate two such strategies, laundering and hedonic avoidance, anddemonstrate their effect on consumption of windfalls. The authors findthat people avoid spending their negatively tagged money on hedonicexpenditures and prefer to make utilitarian or virtuous expenditures toreduce, or launder, their negative feelings about the windfall. Theauthors call this tagging process and strategic consumption emotionalaccounting.

Keywords: emotional accounting, mental accounting, consumerspending, windfalls, behavioral decision theory

Emotional Accounting: How Feelings AboutMoney Influence Consumer Choice

Although mental accounting research suggests that finan-cial windfalls are spent more readily and frivolously thanordinary income, windfalls are sometimes spent reluctantlyor virtuouslya consumption pattern that mental account-ing does not predict. We introduce and test the related con-cept of emotional accounting, in which money is labeledby the feeling it evokes; in turn, this emotional label influ-ences how the money is spent. We show that when the feel-ings evoked by a windfall are negative, consumers engagein strategic consumption to cope with the negativity. In par-ticular, they avoid hedonic purchases so as not to exacer-bate their negative feelings, and when possible, theyattempt to use the money for relatively virtuous or utilitar-ian expenditures to alleviate or launder their negative

feelings about the money. By incorporating consumersfeelings about a sum of money into mental accounting, weexplain behaviors that deviate from previously documentedpurchase patterns.

MENTAL ACCOUNTINGMental accounting proposes that consumers track and

evaluate their financial activities using a set of cognitivelabels or mental accounts, each of which is associatedwith a different marginal propensity to consume (Heath andSoll 1996; Henderson and Peterson 1992; Kahneman andTversky 1984; Thaler 1985, 1990). Mental accounting hasbeen invoked as an explanation for a wide range of con-sumption and spending behaviors, including savings (She-frin and Thaler 1992), borrowing and debt (Hirst, Joyce,and Schadewald 1994; Prelec and Loewenstein 1998),spending of tax rebates (Epley, Mak, and Idson 2006), theeffects of payment on consumption over time (Gourvilleand Soman 1998), windfall spending (Arkes et al. 1994),and many others (for a comprehensive discussion, seeThaler 1999).

Consumers typically track their financial activities bylabeling their money according to the context in which itwas obtained. In a variant of mental accounting calledincome accounting, labels are determined by the moneyssource, and the money is spent in a way that matches thatsource (McGraw, Tetlock, and Kristel 2003; OCurry 1997;Thaler 1999; see also Belk and Wallendorf 1990). For

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example, money won in a football betting pool might beused for dining at a restaurant, but a tax refund is morelikely to be used for paying bills (OCurry 1997).

Mental accounting research has also investigated some ofthe ways that feelings influence consumer spending. In par-ticular, the explicit treatment of feelings in mental account-ing focuses on peoples preference to mentally couple gainsand losses or payment and consumption. For example,Linville and Fischer (1991) find that people prefer toexperience financial losses on different days of the weekbecause simultaneously occurring losses can overwhelmtheir capacity to cope. Prelec and Loewenstein (1998) showthat consumers manage their feelings by temporally decou-pling payment from consumption because the pain of pay-ing for a product dampens the pleasure they derive from itsconsumption.

EMOTIONAL ACCOUNTINGIn this article, we discuss an aspect of feelings in mental

accounting that previous research has not yet considered.We present emotional accounting, a variant of mentalaccounting that categorizes money on the basis of the feel-ing it evokes, and we posit that the valence and intensity ofthese feelings may exert a substantial influence on recipi-ents spending behaviors. Specifically, we argue that theemotional response to the receipt of a sum of money canbecome associated with the money itself in the form of anaffective tag. In effect, we suggest that in the same waythat money is categorized by its source in mental account-ing, it can also be categorized by the feeling it evokes (justas feelings are evoked by categories in schema-triggeredaffect; see Fiske 1982; Smith and Ellsworth 1985). Forexample, consider a sum of money obtained in a con-tentious life insurance settlement. It is easy to imagine thatthe money itself would be negatively tagged as unhappymoney because of its association with the passing ofsomeone and the pain of battling the insurance company.We argue that these negative feelings about the money willinfluence its use.

Why should feelings about money play a role in how it isspent? The answer lies in the general property of emotionsas states of arousal that lead to regulatory or coping behav-iors. People strive to maintain positive feeling states and toimprove negative feeling states (Lazarus and Folkman1984). Likewise, we suggest that affective tags impel cop-ing behavior. Our research focuses on the strategies con-sumers engage in as a way to cope with negative affectivetags. We concentrate on negative tags because previousresearch has shown that negative emotions are more power-ful than positive emotions as an impetus for mood regula-tion or coping (as the title of Baumeister and colleagues[2001] article suggests, Bad is stronger than good).Indeed, Schaller and Cialdini (1990, pp. 28182) report thatnegative emotions induce a focused motivational drive torestore ones mood but that positive emotions yield nocorresponding drive to focus attention and motivationalenergy upon the affective state.

COPING WITH NEGATIVE TAGSImagine a person who receives money in a circumstance

that evokes a negative affective tag on the money. Howmight this person cope with the negativity? Although thereare a host of regulatory strategies that a consumer might

1The activepassive distinction is different from the typical distinctionin the coping literature of problem- versus emotion-focused coping.Indeed, the type of coping we study is not exactly of either form; instead,our behavioral strategies are examples of displaced coping (Raghu-nathan, Pham, and Corfman 2006). Displaced coping is akin to coping inthe sense that the affective state motivates a decision or behavior thatseems to address the source of this affective state;... however, it is differentfrom standard coping because the decision/behavior takes place in adomain that is only somewhat but not completely related to the source ofthe feelings (Raghunathan, Pham, and Corfman 2006, p. 598).

engage in (see Duhachek 2005), we highlight two that arefocused on spending affectively tagged money: hedonicavoidance and laundering. First, we argue that the recipientwill avoid purchasing products whose consumption mayintensify his or her negative feelings (Luce 1998). Becauseconsuming hedonic products can arouse guilty feelings(Kivetz and Simonson 2002; Strahilevitz and Myers 1998),we reason that such products are unlikely to be viewed asan effective means to cope. Thus, when offered the possi-bility of spending negatively tagged windfalls on hedonicproducts, consumers will engage in hedonic avoidance.Hedonic avoidance is a passive coping strategy that consistsof consumers creating physical or psychic distance(Duhachek 2005, p. 46) between themselves and the nega-tively tagged windfall by engaging in decision deferral andrejecting a hedonic consumption opportunity.

Second, in addition to passive coping strategies, there areactive coping strategies by which consumers seek productsthat can become an effective means to mitigate an affectivetags negativity.1 We argue that consumers will cope byspending their negatively tagged money on virtuous prod-ucts. This prediction is drawn from psychological researchlinking virtuous behaviors, such as altruistic helping, topeoples desire to improve their negative moods (Baumann,Cialdini, and Kenrick 1981; Cialdini and Kenrick 1976;Cialdini et al. 1987; Schaller and Cialdini 1990) and fromsociological research about how blood money obtained inchild wrongful death suits is often donated to charity, schol-arships, or safety organizations (Zelizer 1994). Utilitarianproductsproducts that provide functional benefitsmayalso serve as effective coping means because their benefitscan be long-lasting and therefore can represent virtuousinvestments (Wertenbroch 1998). Thus, we suggest thatconsumers choose virtuous or utilitarian purchases to laun-der or cleanse the moneys affective tag of its negativity.

Conceptually, laundering is related to Tetlocks (2002)notion of moral cleansing, in which people are drawn tovirtuous behaviors that enable them to reduce the negativefeelings that arise from exposure to morally corrosive trade-offs. Such a desire to morally cleanse appears to guideKenyan Luo tribesmen, who hold ceremonies to purifymoney earned from certain taboo transactions (e.g., fromthe sale of tobacco), or bitter money, before its consump-tion (Shipton 1989). Building on the notion of laundering,Ramanathan and Williams (2007) show that prudent con-sumers (as opposed to impulsive consumers) who experi-ence conflicted feelings are more likely to subsequentlyconsume a utilitarian option to improve these feelings.

Laundering and avoidance are related in the sense thatthey both entail avoiding hedonic alternatives. As we showsubsequently, they are also related in the sense that peoplehave a tendency to launder rather than to avoid if bothoptions are available. As we elaborate in the general discus-

68 JOURNAL OF MARKETING RESEARCH, FEBRUARY 2009

sion, however, the (in)appropriateness of a launderingopportunity can lead to avoidance in some consumer con-texts. Despite their relationship, we have elected to distin-guish between laundering and avoidance here for theoreti-cal and empirical reasons. First, active strategies, such aslaundering, and passive strategies, such as hedonic avoid-ance, are treated as conceptually distinct in the coping lit-erature (see Duhachek 2005; Folkman et al. 1986). Second,as our studies attest, respondents treat avoidance and laun-dering as two distinct strategies that appear to have differ-ent effects on feelings; while laundering leads to a decreasein negative feelings about the money, hedonic avoidanceresults in little short-term change in feelings. The appar-ently rapid effect of laundering on peoples feelings maycontribute to the tendency to favor laundering over avoid-ance in many situations.

WINDFALL SPENDINGWe use windfallsunexpected monetary gainsas a

case study for emotional accounting. Windfalls are attrac-tive for two reasons. First, mental accounting researchclearly predicts that windfalls are more likely to beassigned to a pocket money account and, as a result, arespent more readily and frivolously than ordinary income(Arkes et al. 1994; Bodkin 1959; Epley and Gneezy 2007;but see Kreinin 1961). For example, in one experiment byArkes and colleagues (1994), students who received anunanticipated payment for participating in a research studywere more likely to use the money for snacks at a stadiumconcession stand than students who received an anticipatedpayment. Similarly, OCurry and Strahilevitz (2001) showthat people are more likely to purchase hedonic products(e.g., a professional massage, tickets to a pop music con-cert) with lottery prize money than with ordinary income.In other words, mental accounting research indicates thatwindfalls are often spent frivolously and therefore areunlikely to be laundered or avoided. Second, windfalls areparticularly attractive for our test of emotional accountingbecause their receipt rarely evokes a neutral feeling; receiv-ing a windfall is typically a positive experience. OCurryand Strahilevitz note that the positive feeling people associ-ate with windfalls might help mitigate the guilt that arisesfrom the frivolous ways windfalls are spent.

In this article, we propose that when windfalls arereceived under negative circumstances, negative feelingsare associated with the money. In turn, the resultant nega-tive affective tags motivate consumers to cope by engagingin hedonic avoidance or laundering, depending on thechoice set offered to them and the appropriateness of eachoption as a coping means. Thus, we show that consumptionof negatively tagged windfalls deviates from the typicalfrivolous spending of ordinary windfalls.

OVERVIEWOur empirical section is constructed as follows: We test

the hedonic avoidance effect in Study 1. We show thatrespondents are more likely to defer their choice than tomake a hedonic purchase when the circumstance in which awindfall was obtained evokes relatively strong negativefeelings about the money. In Study 2, we rule out an inci-dental affect explanation for the avoidance effect and showthat for avoidance to occur, the feeling must be integral tothe money. We test the laundering effect and its implica-

tions in Study 3. We show that respondents are more likelyto make virtuous or utilitarian choices when windfalls areassociated with negative feelings about the money thanwhen they are associated with positive feelings. Studies 4a and 4b replicate the laundering effect using a windfall of real money. Study 5 presents evidence that partici-pants view hedonic avoidance and laundering as distinctstrategies. Study 6 holds the choice options constant butinfluences their appropriateness as coping means bymanipulating the salience of their hedonic or utilitariancharacteristics. Finally, Study 7 shows that when people areprovided with other means to cope with a negative affectivetag, they no longer attempt to launder their money. Weclose with a discussion of emotional accounting in the mar-ketplace and offer suggestions for further research.

STUDY 1: HEDONIC AVOIDANCEMethod

Study 1 tests the hypothesis that people tend to avoidspending a negatively tagged windfall on a hedonic pur-chase. We demonstrate this avoidance effect using abetween-subjects design in multiple scenario studies thatshare a common structure: a condition in which a financialwindfall is received under circumstances that evoke positivefeelings about the money (positive circumstance) and acondition in which a financial windfall is received undercircumstances that evoke negative feelings about the money(negative circumstance). After being presented with the sce-nario, participants in each condition are asked to complete apair of unipolar emotion measures designed to assess thepresence of a valenced feeling about the money and, ifpresent, its intensity (for a discussion of such unipolar emo-tion measures, see Russell and Carroll 1999):

When you think about the money, do you feel good?____ Yes ____ No

If you checked Yes, how good do you feel?1 2 3 4 5 6 7Slightly Moderately Extremely

When you think about the money, do you feel bad?____ Yes ____ No

If you checked Yes, how bad do you feel?1 2 3 4 5 6 7Slightly Moderately Extremely

We expect less positive and greater negative feelings aboutthe windfall in the negative-circumstance condition than inthe positive-circumstance condition.

Following the emotions measures, participants are askedwhether they would spend their windfall on a hedonic item.We expect that respondents in the negative-circumstanceconditions will be less likely to purchase the hedonic itembecause such an expenditure would exacerbate their nega-tive feelings about the windfall; avoiding the hedonic itemwill at least not make things worse.

Participants were undergraduate students (N = 648) whowere randomly assigned to one of two conditions: positivecircumstance or negative circumstance. Each vignette wasrun on separate occasions using different populations;because the three vignettes are conceptual replicates, wepresent them together. In the Found Money scenario, thewindfall is found either in a jacket pocket (positive circum-stance) or on the ground and ostensibly belonged to some-

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2Ito, Cacioppo, and Lang (1998) and Larsen and colleagues (2009)show that correlations between derived measures of valence, such as P N, and standard bipolar measures of valence approach unity. However, theadvantage of using unipolar scales is that they take into account twoimportant aspects of emotions: (1) They enable positive and negative affectto be measured independently (Russell and Carroll 1999), and (2) theyallow for a distinction between ambivalence and neutrality, an ambiguitythat clouds the interpretation of 0 ratings in bipolar scales (Kaplan1972).

one else (negative circumstance); in the Brothers Gift sce-nario, the money is received either from a wealthy brother(positive circumstance) or from a presumably financiallystrapped brother (negative circumstance); in the UnclesGift scenario, the money coincides either with an unclesvisit (positive circumstance) or with his illness (negativecircumstance). After reading the scenario, participants com-pleted the emotions measures and were then presented withthe option to purchase a hedonic item (ice-cream sundae,designer sunglasses, and stereo system for each scenario,respectively). Participants who had indicated a preferencefor the hedonic item were also asked their willingness topay (WTP) for the option. The Appendix presents the textof the scenario for each condition.Results

Because the three vignettes served as stimulus replicates,we combined their data into one analysis (the results ofeach test are also significant for each vignette separately).We begin by confirming that the negative-circumstance par-ticipants felt more negatively about their windfall than theirpositive-circumstance counterparts. For each participant,we subtract the negative affect rating (N) from the positiveaffect rating (P), producing a scale that ranges from 7 to 7(participants indicating no to the presence question wereassigned a zero). This yields a summary measure of affect,P N, which mirrors a bipolar affective continuum (Ito,Cacioppo, and Lang 1998)2; higher numbers indicategreater positive feelings than negative feelings. As an addi-tional manipulation check, we examine the proportion ofparticipants in each condition who endorse any degree ofnegative feelings (i.e., the proportion of people who checkYes to the feel bad about the money question).

Our experimental manipulation was effective. Respon-dents reported feeling better about the money in thepositive-circumstance condition than in the negative-circumstance condition. The summary measure of affect,P N, was indeed greater in the positive-circumstance con-dition (M = 4.92) than in the negative-circumstance condi-tion (M = .63) for all three vignettes (t646 = 16.0, p .45). As we expected, theWTPs replicated this pattern, with nearly identical WTPs inthe positive-circumstance and positive-money conditions

(Ms = $115.51 and $118.76), which are both significantlygreater than in the negative-circumstance condition (M =$65.12; F(1, 120) = 4.1, p < .05). In summary, the data sug-gest that for avoidance to occur, peoples negative affectmust be tied to the windfall; simply experiencing an unre-lated negative event does not give rise to the same patternof behavior.

However, it remains possible that the illness to the closefamily friend in the positive-money condition was not suffi-ciently negative to trigger avoidance. As a manipulationcheck, we added a version of the positive-money conditionin which participants were asked to indicate their feelingsabout the situation rather than the gift money (n = 48). Par-ticipants overwhelmingly (79%) endorsed having onlynegative feelings about the situationclearly, their inciden-tal emotion was negative (P N: M = 4.5). Nevertheless,the choice results support our contention that a negativeaffective tag is necessary to influence choice in this context:40% of these participants avoided the stereo, a nonsignifi-cant difference from the positive-circumstance condition(36%; 2(1) = .1, n.s.) or the original positive-money condi-tion (44%; 2(1) = .2, n.s.) but significantly less than thenegative-circumstance condition (66%; 2(1) = 5.0, p