Breaking your budget? Why consumers overspend on exceptional purchases

Jun 19, 2012

Consumers routinely overspend on unbudgeted purchases such as birthday gifts, car repairs, or luxury chocolates because they underestimate the overall number of such "exceptional" purchases, according to a new study in the Journal of Consumer Research.

"This tendency to underbudget for so-called 'exceptional' purchases occurs because, although each purchase is unusual in isolation, when combined they tend to occur with unexpected frequency," write authors Abigail B. Sussman (Princeton University) and Adam L. Alter (Stern School of Business, New York University). "People fail to recognize just how many items fall into this exceptional category, so they spend more than they would if they realized how often they were spending on these exceptional purchases."

The authors found that forecasted ordinary expenses accurately but underestimated how much they would spend on exceptional products. Consumers were willing to pay more for exceptional items when presented one at a time than when they were presented all at once. "Consumers tend to treat each exceptional purchase as though it exists in isolation, rather than incorporating it into their budget as one in a series of unique purchases," write the authors.

For example, imagine that one of your favorite bands is performing nearby. The ticket costs more than you would ordinarily spend, but you have never seen this band live and decide the experience is well worth the cost. The following week, your TV breaks and you buy a really expensive replacement since you only buy a new TV once every few years. A week later, you are celebrating your 10th wedding anniversary. Since this is a once-in-a-lifetime event, you decide that the occasion warrants a splurge.

"Failure to aggregate unusual purchases leads consumers to splurge on purchases that they would view more conservatively if they understood these connections. Overall, this tendency results in overspending and under-saving," the authors conclude. "Understanding differences in accounting for ordinary and exceptional expenses can help consumers make wiser budgeting decisions."

Explore further: Power can corrupt even the honest

More information: Abigail B. Sussman and Adam L. Alter. "The Exception Is the Rule: Underestimating and Overspending on Exceptional Expenses." Journal of Consumer Research: December 2012.

add to favorites email to friend print save as pdf

Related Stories

In-store slack: Consumers often plan for unplanned purchases

May 06, 2010

Straying from the grocery list can yield some surprises in your shopping cart, but not necessarily in your wallet, according to University of Pittsburgh researchers and a coresearcher from Baylor University who have coauthored ...

Do experiences or material goods make us happier?

Feb 23, 2009

Should I spend money on a vacation or a new computer? Will an experience or an object make me happier? A new study in the Journal of Consumer Research says it depends on different factors, including how materialistic you ...

Extended service contracts: When and why do people buy them?

Jun 15, 2009

Consumer experts have long recommended against buying Extended Service Contracts (ESCs) with products, since they are rarely cost effective. A new study in the Journal of Consumer Research examines the reasons why so man ...

Recommended for you

Power can corrupt even the honest

13 hours ago

When appointing a new leader, selectors base their choice on several factors and typically look for leaders with desirable characteristics such as honesty and trustworthiness. However once leaders are in power, can we trust ...

Learning at 10 degrees north

14 hours ago

Secluded beaches, calypso music and the entertaining carnival are often what come to mind when thinking of the islands of Trinidad and Tobago. But Dal Earth Sciences students might first consider Trinidad's ...

How to find the knowns and unknowns in any research

15 hours ago

Have you ever felt overloaded by information? Ever wondered how to make sense of claims and counter-claims about a topic? With so much information out there on many different issues, how is a person new to ...

Minorities energize US consumer market, according to report

15 hours ago

The buying power of minority groups in the U.S. has reached new heights and continues to outpace cumulative inflation, according to the latest Multicultural Economy Report from the Selig Center for Economic Growth at the ...

User comments : 1

Adjust slider to filter visible comments by rank

Display comments: newest first

Vendicar_Decarian
1 / 5 (1) Jun 19, 2012
This is important research that will provide a means by which retailers will find exceptional reasons to charge exceptional prices, thereby increasing corporate profits.

Well done.