Contextualizing consumer financial judgments and decisions

Gurdamar Okutur, Nazli (2021) Contextualizing consumer financial judgments and decisions. Doctoral thesis, University of London: London Business School.

Abstract

This dissertation investigates how changes to a decision’s frame or the decision-maker’s perspective affect consumers’ financial judgments and decision-making. The first chapter examines how different ways of constructing a donation portfolio affect the amount of money people allocate to charitable giving. I find that the order in which people decide how much of their money to allocate to charitable giving and identify which charities to support affects their total donation amount. Specifically, individuals contribute more money when they first determine which charities to support in advance of determining how much to allocate for charitable giving than vice versa. This effect is driven by the pain of paying consumers experience when allocating money to charity: the more consumers have a concretely identified set of charities to support, the less pain of paying they feel when allocating money for charity, causing them to donate more than they would before they have determined the target charities. The second chapter investigates how different perceptions of the self influence one’s tendency to commit sunk-cost bias. The results show that individuals who have a weak sense of psychological connectedness to their past self that had made the initial investment decision are less likely to display sunk-cost bias because they anticipate less negative feelings associated with abandoning substantial investments. The findings identify high past-self-continuity as a potential cause of sunk-cost bias and propose interventions that reduce past-self-continuity as a means to reduce this bias. The third chapter focuses on subjective judgments of resource allocations and documents how individuals compare their resource allocation to others who face similar budgetary constraints as they do. I observe that people, on average, tend to believe that others at their income level have more money to allocate across a range of expenditure categories than they do. I argue that individuals are insensitive to the financial constraints of others; while most people 4 are aware of the limits on their money that inhibit their expenditures, they fail to realize that others are as inhibited as they are. These results suggest that people may feel poorer than others, even when those others do not have any more money than they do. Together, the three chapters of my dissertation demonstrate that contextual changes can potentially have significant impact on how consumers think about and manage their finances. The interventions identified can inform both managerial and policy decisions to improve consumers’ financial decision-making and wellbeing.