Budget Depreciation: When Budgeting Early Increases Spending

While budgeting in advance is seen as a good practice to control spending, this research shows that budgeting too early for a specific purchase may increase spending. We argue that as the temporal separation between budget setting and actual purchase increases, consumers become more willing to overspend because of what we term “budget depreciation.” Consumers adapt to the reference point set by the budget such that, over time, the budgeted level...