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Savings, subgoals, and reference points

Author

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  • Helen Colby
  • Gretchen B. Chapman

Abstract

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 small 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 subgoals (e.g., save $60 per week to buy a $180 iPod). Experiment 2 replicated this finding and demonstrated that the subgoal 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 subgoal exactly (not under or overshoot it). These results suggest a reference point mechanism and point to ways that behavioral decision research can be harnessed to improve economic behaviors.

Suggested Citation

  • Helen Colby & Gretchen B. Chapman, 2013. "Savings, subgoals, and reference points," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 8(1), pages 16-24, January.
  • Handle: RePEc:jdm:journl:v:8:y:2013:i:1:p:16-24
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    References listed on IDEAS

    as
    1. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2003. "Optimal Defaults," American Economic Review, American Economic Association, pages 180-185.
    2. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    3. Shlomo Benartzi & Richard Thaler, 2007. "Heuristics and Biases in Retirement Savings Behavior," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 81-104, Summer.
    4. Gourville, John T, 1998. " Pennies-a-Day: The Effect of Temporal Reframing on Transaction Evaluation," Journal of Consumer Research, Oxford University Press, vol. 24(4), pages 395-408, March.
    5. Tim Fry & Sandra Mihajilo & Roslyn Russell & Robert Brooks, 2008. "The Factors Influencing Saving in a Matched Savings Program: Goals, Knowledge of Payment Instruments, and Other Behavior," Journal of Family and Economic Issues, Springer, vol. 29(2), pages 234-250, June.
    6. Botond Koszegi & Matthew Rabin, 2009. "Reference-Dependent Consumption Plans," American Economic Review, American Economic Association, pages 909-936.
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