The Budget Contraction Effect: Cutting Categories to Cope With Shrinking Budgets

Kurt Carlson, Georgetown University, USA
Jared Wolfe, Fuqua School of Business, Duke University, USA
Dan Ariely, Fuqua School of Business, Duke University, USA
Joel Huber, Fuqua Business School, Duke University, USA
Economic theory dictates that allocation of a given budget does not depend on whether the budget is higher or lower than a previous budget. We consistently find an asymmetry in budget expansion and contraction paths. For a given budget, consumers purchase fewer different products if their prior budget was higher than if their prior budget was lower. Data from the studies reveals this asymmetry in allocations is driven by the decreasing budget, not the increasing budget—a budget contraction effect.
[ to cite ]:
Kurt Carlson, Jared Wolfe, Dan Ariely, and Joel Huber (2010) ,"The Budget Contraction Effect: Cutting Categories to Cope With Shrinking Budgets", in NA - Advances in Consumer Research Volume 37, eds. Margaret C. Campbell, Jeff Inman, and Rik Pieters, Duluth, MN : Association for Consumer Research, Pages: 720-720 .