Why do we transfer negative emotions about being broke on items that we purchase?

The Bottom-Dollar Effect

, explained.
Bias

What is the Bottom-Dollar Effect?

The bottom dollar effect describes our tendency to dislike products and services that exhaust our remaining budget. We are less satisfied with our purchases if they cause a strain on our finances.

Where this bias occurs

The bottom dollar effect occurs for purchases that deplete our remaining budget. That can be for any purchase made near the end of our paycheque funds but can also occur when a purchase diminishes our allocated budget for a particular type of activity or product.

For example, imagine that you budget $150 a month for dinners out at restaurants. It is near the end of the month, and you have $40 left in that budget, so you decide to go out for dinner with friends. Your group decides to go to one of your favorite restaurants and you spend the remainder of your budget on a menu item that you usually love. Yet, at the end of the dinner, you feel less satisfied with the meal than you normally do, even though the food was the same. Your negative experience is caused because the dinner, in your mind, ends up representing the last of these positive experiences for the month. Your negative emotions associated with running out of money are transferred onto the experience itself, which is known as the bottom dollar effect.

Sources

  1. Tharp, D. (2017, January 23). The Bottom Dollar Effect And The Behavioral Advantage Of AUM Pricing Over Retainers. Kitces. https://www.kitces.com/blog/bottom-dollar-effect-and-behavioral-finance-bias-for-aum-over-retainer-fees
  2. Soster, R. (2014, June 16). ‘Bottom-dollar effect’ makes shoppers blue. Interview by C. Kissel. Bankrate. https://www.bankrate.com/finance/smart-spending/bottom-dollar-effect-makes-shoppers-blue.aspx
  3. Coglode. (2020, September 1). Bottom Dollar Effect. https://www.coglode.com/gem/bottom-dollar-effect
  4. Soster, R. L., Gershoff, A. D., & Bearden, W. O. (2014). The bottom dollar effect: The influence of spending to zero on pain of payment and satisfaction. Journal of Consumer Research, 41(3), 656-677. https://doi.org/10.1086/677223

About the Authors

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Dan Pilat

Dan is a Co-Founder and Managing Director at The Decision Lab. He is a bestselling author of Intention - a book he wrote with Wiley on the mindful application of behavioral science in organizations. Dan has a background in organizational decision making, with a BComm in Decision & Information Systems from McGill University. He has worked on enterprise-level behavioral architecture at TD Securities and BMO Capital Markets, where he advised management on the implementation of systems processing billions of dollars per week. Driven by an appetite for the latest in technology, Dan created a course on business intelligence and lectured at McGill University, and has applied behavioral science to topics such as augmented and virtual reality.

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Dr. Sekoul Krastev

Sekoul is a Co-Founder and Managing Director at The Decision Lab. He is a bestselling author of Intention - a book he wrote with Wiley on the mindful application of behavioral science in organizations. A decision scientist with a PhD in Decision Neuroscience from McGill University, Sekoul's work has been featured in peer-reviewed journals and has been presented at conferences around the world. Sekoul previously advised management on innovation and engagement strategy at The Boston Consulting Group as well as on online media strategy at Google. He has a deep interest in the applications of behavioral science to new technology and has published on these topics in places such as the Huffington Post and Strategy & Business.

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