Refund Psychology
Abstract
Consumers frequently receive refunds from prior purchases. In this research, I examine if money refunded from previous purchases is more likely to be spent than money that does not go through a refund process. Across eight fully pre-registered studies, I test how consumers’ willingness to spend depends on the transaction history of their money. I find that money refunded from a previous purchase is more likely to be spent on items unrelated to that purchase than non-refunded money that is otherwise identical in its source. I suggest that this pattern arises because the refunded money is earmarked as “spending money” at the time of the initial purchase and then retains that earmark even after the refund. Therefore, when refunds arrive, they feel free from obligations and easy to spend. This research documents the psychology of purchase refunds, a topic largely unaddressed in the mental accounting literature to date.