Spending Too Little in Hard Times

Authors

• Alessandro Del Ponte, Chapman UniversityFollow
• Peter DeScioli, Stony Brook University

Document Type

Article

Publication Date

11-19-2018

Abstract

People’s decisions to consume and save resources are critical to their wellbeing. Previous experiments find that people typically spend too much because of how they discount the future. We propose that people’s motive to preserve their savings can instead cause them to spend too little in hard times. We design an economic game in which participants can store resources for the future to survive in a harsh environment. A player’s income is uncertain and consumption yields diminishing returns within each day, creating tradeoffs between spending and saving. We compare participants’ decisions to a heuristic that performed best in simulations. We find that participants spent too much after windfalls in income, consistent with previous research, but they also spent too little after downturns, supporting the resource preservation hypothesis. In Experiment 2, we find that by varying the income stream, the downturn effect can be isolated from the windfall effect. In Experiments 3–4, we find the same downturn effect in games with financial and political themes.

Comments

NOTICE: this is the author’s version of a work that was accepted for publication in Cognition. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Cognition, volume 183, issue 1, in 2019. https://doi.org/10.1016/j.cognition.2018.10.028

The Creative Commons license below applies only to this version of the article.

Recommended Citation

Del Ponte, A., & DeScioli, P. (2019). Spending Too Little in Hard Times. Cognition, 183(1), 139-151. https://doi.org/10.1016/j.cognition.2018.10.028

Peer Reviewed

1

Copyright

Elsevier

Creative Commons License

This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.