Why It’s So Easy to Rationalize a Splurge
A Q&A with Chicago Booth’s Abigail Sussman about why budgets, and diets, often fail
- July 15, 2022
- CBR - Marketing
One insight from my work on financial decision-making is that people tend to neglect what they perceive as one-time or infrequent expenses. They typically fail to draw connections between one-time items, and so they don’t see the importance of spending on them for their budgets.
For example, you might spend a lot of money to go to a friend’s wedding, and then three weeks later spend just as much on another trip for a different friend’s 30th birthday party. In reality, you have a handful of expensive special events to attend. Ideally, you would categorize them together and budget accordingly. But people tend to view unusual expenses in isolation, which leads them to have a harder time predicting what these expenses will be and to overspend on each one.
There are similarities and differences in how we reason about our resources—I typically consider time and calories as having many parallels to money. In the context of calories, the parallel comes when we consider a situation where they are deliberately limited. Let’s say you’re a dieter, and the goal is to consume, “spend,” a limited number of calories.
Now go back to the wedding example. You’re at the reception and asking yourself, “Should I have an extra slice of cake?” The same reasoning applies here as it did to the financial decisions. You say, “It’s a one-time thing. I can splurge on an extra piece of cake.” Later, at the 30th birthday party, you also indulge in excess food and drink—again thinking it’s a one-time thing.
You might adjust your daily activity as well. Imagine that every day you eat a cookie for a snack. Today, you instead have a serving of ice cream. Considering this ice cream an unusual treat will lead you to indulge in more of it, in part because you don’t think it will have as large of an impact on your diet.
The remedy depends on the context. In a financial context, creating a budget category made up of expenses you might otherwise consider one-time occurrences can help. This allows you to recognize how frequently expenses of one kind or another occur and how much you spend on them. It can also facilitate planning, for example by prompting you to create a budget reserve. In a dieting context, you can’t do that.
An alternative channel is to think about the broader category you’re consuming from. In the example above, considering the ice cream as your afternoon snack and putting it in the same category as your daily cookie should help overcome the tendency to treat it as a one-time thing. Recognizing that the ice cream fills the same caloric slot as your usual snack will help you acknowledge the relevance of the ice cream for your diet and consume less.
Another path is informational: be aware of the bias and adjust for it. You can say to yourself, “I know that thinking this item is unusual will lead me to overconsume, so I’ll try to underconsume instead.” But it’s tough to do. I’m personally better at noticing this behavior than correcting for it.
Abigail Sussman is professor of marketing at Chicago Booth.
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