POSTED BY: | February 15, 2013

Journal of Consumer Research

Consumers routinely overspend on unbudgeted purchases such as birthday gifts, car repairs, or luxury chocolates because they underestimate the overall number of such “exceptional” purchases, according to a new study in the Journal of Consumer Research.

“This tendency to underbudget for so-called ‘exceptional’ purchases occurs because, although each purchase is unusual in isolation, when combined they tend to occur with unexpected frequency,” write authors Abigail B. Sussman (Princeton University) and Adam L. Alter (Stern School of Business, New York University). “People fail to recognize just how many items fall into this exceptional category, so they spend more than they would if they realized how often they were spending on these exceptional purchases.”

The authors found that consumers forecasted ordinary expenses accurately but underestimated how much they would spend on exceptional products. Consumers were willing to pay more for exceptional items when presented one at a time than when they were presented all at once. “Consumers tend to treat each exceptional purchase as though it exists in isolation, rather than incorporating it into their budget as one in a series of unique purchases,” write the authors.

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Abigail B. Sussman and Adam L. Alter. “The Exception Is the Rule: Underestimating and Overspending on Exceptional Expenses.” Journal of Consumer Research: December 2012.