Explanations of Effects of Prior Income Changes on Bying Decisions

15 Pages Posted: 28 Sep 2012

See all articles by Marcus Selart

Marcus Selart

Norwegian School of Economics (NHH) - Department of Strategy and Management

Tommy Garling

Göteborg University

Niklas Karlsson

Goteborg University, Faculty of Social Sciences, Department of Psychology

Date Written: September 28, 2012

Abstract

Two experiments with undergraduates as subjects tested explanations of how a prior temporary income change influences choices between buying and deferred buying. In Experiment 1 predictions from the behavioral life-cycle theory (Shefrin & Thaler, 1988), the renewable resources model (Linville & Fischer, 1991) and the loss-sensitivity principle (Garling & Romanus, 1997) were contrasted. The results are inconsistent with the latter two explanations since the framing of buying as positive (buying a new model of a product) or negative (replacing a broken product) did not interact with the income change. Congruent with the behavioral life-cycle theory, willingness to buy was greater when subjects received a temporary income increase than when they received a temporary income decrease although total assets were equal. Further support for the behavioral life-cycle theory is obtained in Experiment 2 where four income-change conditions and durable and nondurable goods are compared.

Suggested Citation

Selart, Marcus and Garling, Tommy and Karlsson, Niklas, Explanations of Effects of Prior Income Changes on Bying Decisions (September 28, 2012). Karlsson, N., Gärling, T., & Selart, M. (1999) Explanations of effects of prior income changes on intertemporal choice. Journal of Economic Psychology, 20, 449-463. . Available at SSRN: https://ssrn.com/abstract=2153794

Marcus Selart (Contact Author)

Norwegian School of Economics (NHH) - Department of Strategy and Management ( email )

Breiviksveien 40
N-5045 Bergen
Norway
+47 55 95 96 95 (Phone)

Tommy Garling

Göteborg University ( email )

Viktoriagatan 30
Göteborg, 405 30
Sweden

Niklas Karlsson

Goteborg University, Faculty of Social Sciences, Department of Psychology ( email )

P.O. Box 500
Goteborg, 40530
Sweden

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