Mental Accounting and Food Stamps

Jesse Shapiro at Brown talks about his research on food stamps:

"It's unusual for economics to make a quantitative prediction — economics is usually about qualitative predictions, like "when prices go up, demand falls." This is an interesting case where we have a very important public policy — the second-biggest means-tested program in the United States, recently enrolling almost one out of every five U.S. households, touching millions of lives — where economic theory says something very different from the rhetoric surrounding the program. And our data say it's not just wrong, it's not that it's 12 percent instead of 10 percent; it's 50 percent instead of 10 percent. It's wrong by a lot. ...

"whereas the textbook view of the program is that out of every SNAP dollar, maybe 10 cents is going to food and the rest going to other things, we find it's more like 50 cents, which is a big difference in terms of the overall impact on households' budgets and spending behavior. We've known for a long time that people categorize money. We think that part of what's going on is that when SNAP comes in, the household sort of puts it in the food part of the budget, rather than say, "Well, let me just take some other money out of that part of the budget and spread it around evenly," the way that the economics textbook says that they should."