Savings, Sub goals, and Reference Points

Savings, Sub goals, and Reference Points

7 July, 2020  •  

Decision makers often save money for a specific goal by forgoing discretionary consumption and instead putting the money toward the savings goal. We hypothesized that reference points can be exploited to enhance this type of saving. In two hypothetical scenario studies, subjects made judgments of their likelihood to forgo a smaller expenditure in order to put the money toward the savings goal. In Experiment 1 judgments were higher if the savings goal was presented as composed of weekly sub goals (e.g., save $60 per week to buy a $180 iPod). Experiment 2 replicated this finding and demonstrated that the sub goal manipulation increased judgments of likelihood to save money only when the money saved from the foregone consumption would allow the decision maker to meet the weekly sub goal exactly (not under or overshoot it). These results suggest a reference point mechanism and point to ways that behavioural decision research can be harnessed to improve economic behaviours.

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