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

The Bottom-Dollar Effect

, explained.

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.

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Individual effects

Money is always a tricky subject. Although ideally, we should make purchasing decisions according to rational logic, it is difficult for us to set our emotions aside when money is in question. It feels painful to part with money, but usually, we also derive pleasure from the purchase. As long as that pleasure outweighs the pain associated with losing money, then we are making purchasing decisions that feel good.

However, the bottom dollar effect suggests that we feel greater pain at spending money when we are near the end of our budget, and therefore derive less pleasure from the purchase. That means we are spending money without even getting to feel good about what we spent it on, which doesn’t seem very logical. Our dissatisfaction has nothing to do with the actual product, but with the timing at which we bought it.1

The bottom dollar effect also suggests that we are not very consistent with our consumer behavior, which means deviating from rational economic decisions. We are likely to overspend when we have a lot of resources and be too stringent when we don’t have much money left. A lack of consistency indicates a lack of rational decision-making, which makes us susceptible to suboptimal outcomes.

Systemic effects

If we dislike the products we purchase at the end of our budget, we are unlikely to purchase them again. We attribute our negative feelings with the item rather than the situation, which can have negative impacts on companies when we end up associating their products or services with dissatisfaction. By understanding the bottom dollar effect, companies can better strategize.2

Awareness of the bottom dollar effect can actually be beneficial for marketing strategies. In knowing that people are likely to feel negative about a purchase if they are at the end of their budget, marketers can time their advertising to coincide with when most people have disposable income or are receiving a bonus. This may mean on a Friday, when most people get their paycheck, or just after people have received their tax returns.2 This is especially important when acquiring new customers, as companies want their first experience of their product to be a positive one, so they continue to be consumers.

Since people find it more difficult to part with their money at the end of their budget, marketers can also use these times as opportunities to use special incentives, like 2 for 1’s or discounted rates.3 Feeling like we’ve received a good deal can help diminish the effect of the bottom dollar effect because we are more likely to feel that the product was worth the value we paid.

These marketing strategies can help companies get a more consistent flow of income, and can help individuals feel better about their purchases, making a win-win situation!

Why it happens

There are a few prevailing theories as to why the bottom dollar effect occurs. They all begin with the notion that as humans, we code and organize our money into certain categories. For example, we tend to mentally split up different sources of income, such as salary versus bonus income, and then end up treating these categories differently. This process is known as mental accounting and causes us not to view or value all money as the same.4 Our minds process money the way a budget does, allocating different money to different purposes.

Since we categorize our money into specific accounts, the amount of money that we have left influences our spending behavior. We spend more money when we receive our paycheck than at the end of that pay period. The money that remains is coded differently to when we have a lot of resources, and we use our mental account of the money as a reference point in our purchasing decisions.

When our budget is close to zero, our reference point has changed character. While research has shown that parting with money is “painful” for any purchase, the pain of payment increases when our budget is close to zero.4 As a result, we are more likely to feel negative about the purchase because we associate more pain to it.

Why it is important

It is important to be aware of the bottom dollar effect because it means that we are not being rational with our economic purchases because it negatively impacts our emotions. Although it may help us think twice before spending the last of our paycheck, the bottom dollar effect occurs when we’ve already made the decision to spend our money, and it results in feeling unnecessarily bad about our purchase. That means that not only are we out of money, we also feel negative about the purchase that caused us to be in this scenario, so we can’t enjoy it.

Essentially, all money is the same. $1 has the same value whether it is the first or the last dollar that we spend out of our paycheck. However, the bottom dollar effect demonstrates that we do not view money with this rational mindset and instead feel more pain at parting with our last dollar. After experiencing the bottom dollar effect a number of times, we may allow our emotions to influence our purchasing behavior, meaning that we may be susceptible to irrational financial decisions.

How to avoid it

It is difficult to avoid the bottom dollar effect because we cannot get rid of the feeling of pain that is associated with spending money, and the pain is only accentuated when it is the last bit of money that we have.

However, being aware of the bottom dollar effect may help us set ourselves up in more favorable conditions to avoid feeling badly about our purchasing decisions. For example, we can change our consumer behavior by only making large or important purchases when our budgets have a lot of money remaining, or wait until it is replenished by our next paycheque.3

Additionally, because we categorize our money into different mental accounts, we can reserve our additional income for large or unnecessary purchases, or purchases made near the end of our paycheck. Because we view the money as a bonus, we are less likely to psychologically experience pain when we part with it.2

Although not having a budget at all can hinder our financial situation, having a strict budget that divides money into multiple different categories can lead to greater instances of the bottom dollar effect. For example, if we divide our budget into groceries, clothing, entertainment, car expenses, phone bill, and rent, we set ourselves up to have six different scenarios where we are at the bottom dollar of our budget. We will be unsatisfied with the last grocery bill, the last t-shirt we bought, the last dinner out, etc. To avoid feeling the bottom dollar effect on various occasions, we can make a more general budget. We will only feel the bottom dollar effect when we are exhausting the whole budget, not each different section of it, thereby reducing how many purchases we feel badly about.

How it all started

The bottom dollar effect was first studied by Robin Soster, Andrew Gershoff and William Bearden, researchers in the business field, in 2014.4 Following their interest in studies that examine biases that affect financial decision-making, the researchers wanted to see why satisfaction is diminished when people make a purchase with the last little bit of their budget.

The researchers conducted a series of experiments to see the bottom dollar effect in action. They wanted to see how one’s budgetary status at a time of purchase affected how they felt about that purchase. In their first experiment, the researchers asked participants to imagine that they had purchased credits to spend on 2-minute movies that cost 10 credits each. They were then asked to purchase three movies with those credits and watch them. The control group was funded with 50 credits, meaning that the three movies did not deplete their credits, while the experimental group was funded with 30 credits, so their last purchase would indicate the end of their credits.4

The participants were able to choose between four movies for every purchase, suggesting they would pick a title they would enjoy. They were asked before watching the movie to rate on a scale of 1-9 how much they thought they’d enjoy the movie. After they’d watched the short movie, they were asked to rate their satisfaction on a scale of 1-9, and were asked how much they agreed with the statement “I felt as though this film was a good value, given the number of credits that it cost.”4

Soster, Gershoff, and Bearden found that satisfaction for the third film was drastically different depending on whether the movie had depleted the participants’ credits or not. On average, people in the experimental group rated their satisfaction with their last movie at 4.44, whereas individuals in the control group, who still had 20 credits remaining, on average rated their satisfaction with their last movie as 5.61. Satisfaction levels did not significantly vary between groups for the first or second movie they purchased, meaning that the dissatisfaction of the experimental group had to be related to their final movie purchase exhausting their budget. They called this phenomenon the bottom dollar effect, as the bias occurs when someone is at the end of their money.4

Example 1 - The affect of earning

Following their initial experiment, Soster, Gershoff, and Bearden were interested in the extent to which the pain of payment contributes to the bottom dollar effect. The researchers believed that when the difficulty associated with earning money is higher, then the pain of payment would be larger, and therefore the bottom dollar effect would have a greater impact on the individuals.4

Similarly to the aforementioned study, the researchers told participants that they had to watch movies as part of an online film festival. This time, instead of being randomly assigned credits, the participants were told they had to complete a number of tasks that would earn them credits. Participants in the control group had to perform three of these tedious tasks, which earned them 30 credits. Participants in the experimental group only initially performed two tasks, earning them 20 credits. After completing the tasks, the participants were asked about the difficulty of the task.4

Participants then went through the same process of selecting a movie to watch for ten credits. Participants in the experimental group had exhausted their budget after watching two movies and were presented with another task to earn them ten more credits. The same questions were asked as in the initial study, about how much they liked the movie and if they believed it was worth the value of credits.

The researchers found that when participants in the experimental group had to do their third task, those that rated it as more difficult also felt more negatively about the movie that they watched with those earned credits. When participants in the experimental group found the third task easy, they were not less satisfied with the third movie.4

From these results, Soster, Gershoff, and Bearden concluded that earning difficulty affects the prominence of the bottom dollar effect. They believed that this was related to the pain of payment being greater when people felt like they had to work harder to earn it. However, similarly, when replenishment of budgets seems easy, people are less likely to be influenced by the bottom dollar effect.4

Example 2 - Delayed credit card payments

The method of payment that we use when making purchases can affect how we spend our money, but also how we feel about those purchases.

In an interview, Robin Soster, one of the researchers who coined the bottom dollar effect, discussed how making payments on our credit cards may increase the prominence of the bottom dollar effect.2 She discusses that when people make purchases on their credit cards, they don’t feel the pain of payment to as great a degree, known as the cashless effect. Since we don’t have to pay the credit card bill until later, we get to enjoy all the pleasure of the purchase without the pain. She uses the example of paying for a vacation on a credit card and not having to worry about the costs until later.2

Yet, as Soster warns, when our bill comes, it is often at the end of the month which may coincide with the end of our budget.2 The vacation may now have happened weeks ago, meaning that the pleasure derived is a distant thought in our minds. Now that the cost of the vacation is associated with spending the last of our budget, we are likely to transfer our negative emotions about losing the money to how satisfied we were with the vacation.

Had we paid for the trip immediately, we may have been less likely to be affected by the bottom dollar effect, because the pleasure of purchase may have outweighed the pain of payment. This suggests that to avoid transferring our negative emotions that derive from exhausting our budget onto our satisfaction with a purchase, we may want to make payments at the time that we are using that purchase so that positive feelings can be associated with it.


What it is

The bottom dollar effect describes our tendency to transfer the negative emotions associated with exhausting a budget onto our satisfaction with a purchase.

Why it happens

As humans, we are not purely rational when it comes to our financial decisions. We code and organize our money into different mental accounts, and therefore not all money is viewed or valued the same in our minds. When we create a budget and get near the end of the money allocated to that budget, we end up feeling more pain spending that money. Since we feel worse spending that money, we transfer those emotions onto the actual purchase, and feel as though it wasn’t worth what we paid, causing us to be dissatisfied with the product.

Example 1 - Increased difficulty of earning makes the bottom dollar effect more prominent

When we feel like it is difficult to obtain or earn money, the pain of payment associated with spending that money, especially when it is the last of our remaining budget, increases. As a result, when we feel as though the difficulty of earning is high, the bottom dollar effect is enhanced. Alternatively, if we feel that it is easy to replenish our budgets, we are less likely to feel the bottom dollar effect.

Example 2 - Credit card purchases and the bottom dollar effect

Using a credit card to make purchases means that we delay the pain of payment since we don’t have to pay it back until our bill comes. Unfortunately, the arrival of our credit card bills often coincides with the end of a month, which means we may be at the end of our budget. At that moment, we are less likely to remember the pleasure derived from the purchase and focus only on the pain of payment, causing us to be dissatisfied with the purchase. As such, using our credit cards may make the bottom dollar effect more prominent, because of the delay of payment.

How to avoid it

We are always going to feel pain at having to give up our money, making it difficult to avoid the bottom dollar effect altogether. However, there are financial strategies that can help avoid the situation, such as making large purchases when our budget is full or using bonus income to make non-essential purchases. We may also want to pay at the point of purchase instead of waiting for our credit card bill, so that the pleasure derived from the purchase has a better chance of outweighing the pain of payment.


  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
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