Behavioral consequences of income and expense shocks

Vance Larsen, Riona Carriaga, Hilary Wething, Jiaying Zhao and Crystal Hall

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2023, vol. 106, issue C

Abstract: Despite the increasing prevalence of short-term income shocks (e.g., a temporary pay cut), research on how individuals’ financial resilience to these shocks differs from expense shocks (e.g., car repairs) is underdeveloped. Here we build on prior research that explores the behavioral consequences of income and expense shocks and propose an intervention to mitigate the psychological toll posed by such shocks. Across three experiments, participants were presented with either a one-time income or a one-time expense shock and answered questions afterward. We found that one-time income shocks evoked more methods of coping, were harder to cope with, more impactful on daily life, and perceived as a greater loss than expense shocks of the same amount. A self-affirmation intervention successfully mitigated some of these deleterious effects. By differentiating one-time income shocks from one-time expense shocks, these findings provide a more nuanced understanding of decision-making during financial shortfalls. This evidence contributes to strategies used to manage financial emergencies and informs public policy to support household financial management.

Keywords: Decision making; Mental accounting; Self-affirmation; Scarcity; Policy (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S2214804323000939
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:106:y:2023:i:c:s2214804323000939

DOI: 10.1016/j.socec.2023.102067

Access Statistics for this article

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics) is currently edited by Pablo Brañas Garza

More articles in Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics) from Elsevier
Bibliographic data for series maintained by Catherine Liu ().