BlueSky Thinking Summary

Americans receive over $743 billion annually from retail returns, far surpassing the $335 billion in tax refunds The research by Ata Jami at Kellogg examines how people spend this refunded money;

most of it is spent more liberally on luxurious and unplanned items.

In a series of experiments, Jami proved that people spend refunded cash more freely because something called the "pain of paying" is less when the money has already been spent.

For instance, people spent 28% more on indulgence if the money came from refunds than if it came out of their pocket.

The tendency is mediated by individual habits of spending;

tightwads tend to be more conservative while spendthrifts are normally less choosy.

Jami calls consumers to be more aware of how they are handling refunded money and also how retailers could take advantage of such spending behavior in order to boost sales by encouraging spending around the time of return.

Understanding these dynamics has the potential to change both how consumers behave and how retailers run their strategies.