Islamic Mental Accounting towards Relative and Absolute Saving

Islamic Mental Accounting towards Relative and Absolute Saving: An Experimental Study Fuad and Imam Ghozali

WHY THIS ONE? • Lack of empirical evidences in Islamic behavioral-based accounting research • Mental Accounting postulates can not be simply generalized in the Muslim’s society. • Practicing Muslims are restricted by the sharia laws.

• Mental Accounting: a process of coding, • • • categorizing, and evaluating outcomes. Islamic Mental Accounting: a process of evaluating different options and events which is based on the human’s rationality; which is also considering sharia laws. Individual may value two identical monetary gains differently because they are coded and evaluated through distinct mental accounts. We used sharia laws (halal and syubhat) and extra-time involved simultaneously to take the savings to figure out the mental accounting effects.

Sources of Sharia Laws • Holy Qur’an: the first and primary element of sharia law. The final arbritrator and there is no other appeal. • Sunna: the teachings of the Prophet Muhammad (May peace be upon him), which are not explicitly found in the Holy Qur’an. • Ijma’: a consensus on an issue reached by ulama. • Qiyas: new cases or case law which may have already been decided by a higher judge.

EXPERIMENTAL DESIGN AND HYPOTHESES n n n 3 x 3 experimental design consist of Rp. 10, 000. -, Rp. 20, 000 and Rp. 30, 000 absolute value and 10%, 25% and 40% relative to the price of the broiler at the “store Ali”. While broiler was treated as both halal and syubhat, fish was only considered as halal. Thus, there were nine versions of two basic scenarios employing two sharia laws.

Absolute Saving on broiler at Store B Relative Saving on broiler at Store B (in Rp. 000) 10% 25% 40% Rp. 10, 000 A 1 100; 400 A 2 40; 460 A 3 25; 475 Rp. 20, 000 B 1 200; 300 B 2 80; 420 B 3 50; 450 Rp. 30. 000 C 1 300; 200 C 2 120; 380 C 3 75; 425

n n Muslims may act rational, because they are allowed to eat halal (QS 1: 173; QS 5: 88; QS 6: 119) as well as take the savings; thus we posit: “ there is a significant increase in the number of respondents that take the absolute and relative savings (halal)”. Practicing Muslims should prevent themselves from consuming doubtful food. “ There is no significant increase in the number of respondents that take the absolute and relative savings (syubhat)

Instructions Thank you for agreeing to take part in our study. Please read the following paragraph, try to imagine yourself in the situation described answer the question below it. Situation It’s a week to ‘Idl Fitr and you have nothing yet. To celebrate this blessed day, you are deciding to buy the broiler and a fish. After conducting some research, you find that two stores have the most attractive prices on the particular brands and models of these items that you wish to purchase. “Store Ali”, which is 5 minute round trip from your home, is offering the broiler at Rp. 200. 000, - and a fish for Rp. 300. 000, -. “Store Baba” is offering fish at the same price of Rp. 300. 000, but is offering the broiler at Rp. 180. 000. However, because “Store Baba” is less conveniently located, it would take you 20 minutes round trip to make your purchases there. Prior to deciding whether to shop at “Store Ali” or “Store Baba”, you are considering the prices and traveling times involved. Nevertheless, as “Store Baba” is a new one, you do not understand quite well the process of the boiler; whether the boiler was slaughtered according to Islamic law or not. However, you don’t know precisely… Question: At which store would you choose to purchase the two items? Store Ali (Please circle one) Store Baba Please write down the prices at which you are purchasing the two items: Broiler _______ Fish ________

METHODS 360 Muslims respondents from undergraduate students of UNDIP, UNISSULA, USM and UDINUS were volunteered to participate in the experiment. They were randomly allocated to one out of nine treatments in each sharia law. Each cell consist of 40 volunteers. To examine the effect of MA and the role of sharia, we employed 2 and Mc. Nemar C. T.

Relative saving on RESULTS (Halal) broiler at Store B Relative saving 10% 25% 40% Rp. 10, 000 Store A Store B N Store B/n 25 15 40 37. 5% 22 18 40 45% 23 17 40 42. 5% Rp. 20, 000 Store A Store B N Store B/n 25 15 40 37. 5% 12 28 40 70% 16 24 40 60% Rp. 30, 000 Store A Store B N Store B/n 16 24 40 60% 11 29 40 72. 5% 17 33 40 82. 5% 2 1. 200 7. 500* 6. 533** 2 stat 3. 333 1. 633 22. 533*

Syubhat Relative saving on broiler at Store B saving 10% 25% 40% Rp. 10, 000 Store A Store B N Store B/n 34 6 40 15% 28 12 40 30% Rp. 20, 000 Store A Store B N Store B/n 29 11 40 27. 5% 31 9 40 22. 5% 26 14 40 35% Rp. 30, 000 Store A Store B N Store B/n 28 12 40 30% 25 15 40 37. 5% 21 19 40 47. 5 X 2 32. 033* 19. 200* 7. 500* X 2 stat 30. 000* 22. 533* 6. 533**

DISCUSSION n n The role of sharia in the MAE can be explained by the decrease of the number of respondents that take the savings from halal into syubhat scenario. Halal case suggests that MA is confirmed when the relative value is higher than threshold value. Although decreasing, the syubhat case shows the loss of wara’ attitude of Muslims’s society. Mc. Namar Change Test reveals that both halal and syubhat, partially (mostly in the higher relative value), have the same effectiveness in changing respondents’ preferences.

LIMITATIONS AND FURTHER RESEARCH The absolute value of the monetary savings was increased while keeping the “cost” of those savings constant. n Syubhat was only appointed to the blind scenario to take the saving n Different respondents answered different case might resulting the inappropriate conclusion. n