Spending too little in hard times

Area of Science:

• Behavioral Economics
• Decision Science
• Resource Management

Background:

• Consumer spending and saving decisions are vital for individual wellbeing.
• Prior research indicates future discounting leads to overspending.
• This study explores the counterintuitive effect of resource preservation on spending behavior.

Purpose of the Study:

• To investigate whether the motive to preserve savings can cause individuals to underspend, particularly during economic downturns.
• To test the resource preservation hypothesis against established findings on future discounting.

Main Methods:

• An economic game was designed where participants managed resources with uncertain income and diminishing returns on consumption.
• Participant decisions were compared against a simulated optimal heuristic.
• Experiments involved varying income streams and thematic contexts (financial, political) to isolate effects.

Main Results:

• Participants exhibited overspending after income windfalls, aligning with previous research.
• Participants demonstrated underspending after income downturns, supporting the resource preservation hypothesis.
• Experimental manipulations successfully isolated the downturn effect from the windfall effect.

Conclusions:

• The motive to preserve savings can lead to suboptimal underspending in challenging economic conditions.
• Understanding both overspending (due to future discounting) and underspending (due to resource preservation) is crucial for financial wellbeing.
• The resource preservation effect is robust across different economic and thematic contexts.