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A longstanding puzzle in macroeconomics is why individuals with similar levels of available liquidity can have very different marginal propensities to consume (MPCs). We use a new approach to better investigate differences in consumer behaviour in response to hypothetical, one-off gains and losses: using open-ended questions and text analysis to understand the motives underlying consumers decisions. High-liquidity individuals with high MPCs often cite mental accounting motives. Apparently illiquid individuals report a range of coping mechanisms in response to a loss, including labour supply responses, relying on friends and family and selling possessions. This implies greater effective liquidity than narrow financial measures indicate.
Authors

Research Fellow University of Michigan
Tom is a Research Fellow at IFS, a Research Professor for the Institute for Social Research at the University of Michigan.

Deputy Research Director
Peter joined in 2009. He has published several papers on the microeconomics of household spending and labour supply decisions over the life-cycle.

Postdoctoral Researcher University of St Gallen
Working Paper details
- DOI
- 10.1920/wp.ifs.2024.3824
- Publisher
- Institute for Fiscal Studies
Suggested citation
T, Crossley and P, Levell and S, Sierra Vásquez. (2024). What would you do with £500? (...in your own words). 24/38. London: Institute for Fiscal Studies. Available at: https://ifs.org.uk/publications/what-would-you-do-ps500-your-own-words (accessed: 6 February 2025).
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