How setting a budget can unhelpfully influence your decisions

It is generally accepted that, when you go out shopping for something, having a budget in mind is a very good idea. It’s not the amount you’re absolutely, stringently limited to – not like your limit is $50 because you only have $50 in your bank account – but it’s the amount that you are willing to pay for what you want, various factors considered. It might be an absolute maximum (e.g. nothing above $100) or it might be a general target range (e.g. something around $20-30), but either way, you’re using a self-imposed price restraint to limit what you spend.

Counter-intuitively, it seems that that sort of approach actually seems to increase what you spend. In the paper ‘When budgeting backfires: How self-imposed price restraints can increase spending’ (2012), authors Larson and Hamilton report that across six experiments they consistently found that self-imposing a budget when making a purchase decision caused people to have an increased preference for higher-priced items, regardless of whether the budget was an absolute maximum or a general target range.

It seems that imposing a price restraint draws your attention to that general price range and you tend to ignore items whose prices are too far away from the value you’ve decided on. For example, you might say you don’t want to pay more than $100 for a pair of jeans. However, setting that maximum price restraint causes you to ignore the options with considerably lower prices, so you might ignore a $60 pair of jeans, whereas if you hadn’t set a budget you might have considered the $60 pair (and they might have turned out to be exactly what you wanted). Just by setting a budget, you’re putting blinkers on and only paying attention to a restricted range of items that are reasonably close to your price restraint. Unfortunately, this restricted range of items then goes on to warp your judgement of the items’ prices and quality.

The experiments showed that there was a scaling effect on perceived quality of that more restricted range of items, because when you restrict your appraisal to a smaller range with less context, it makes the differences between the items in that small range seem bigger. The consequence of this is that the lowest quality item suddenly seems much more low quality than it otherwise would have, and that in turn leads you to prefer the higher quality items in your small range. And what does higher quality mean? Somewhat loosely and generally, it means higher prices. (And it is rather loosely and generally true, if that graph I’ve previously posted is anything to go by).

The selection of that small range of items also means that prices become less meaningful. If you’ve set your budget to $100, and you’ve ended up with several pairs of jeans to choose from that are all in the $90-100 price range, then the price isn’t going to make much difference. You’re going to be paying around $100, give or take a bit, so price isn’t particularly informative for making that decision – no single price is that radically different from your initial budget of $100. As a result, you go back to making a decision, as best you can, based on quality. And as I said above, the differences in quality seem greater in that restricted range of items, and you end up preferring the better quality items, which on average means higher prices.

As always, there are a lot of other factors to consider (how well a person can evaluate quality, how much emphasis a person places on quality vs. aesthetic value, how well quality and price correlate in different groups of consumable goods such as clothes or food or electronics or furniture, etc). Still, it seems like a pretty robust finding – price restraints unfortunately seem to draw your attention to a higher price range and then distort it while it’s there.

But how do you counteract the apparent “costs” of having a budget? Not having a budget doesn’t seem like a better alternative to having a budget, but as the authors of the paper speculate, there’s a wider context of budgeting that’s more encouraging. If you plan your spending in general, keep track of your earnings and expenditures, and engage in some thoughtful and practical budget-planning and monitoring, you’ll probably still come out on top, regardless of a pair of slightly-more-expensive-than-necessary-or-intended jeans. Need some motivation/inspiration? Check out what Lin has to say about her approach to budgeting.

Implicit associations and brand preferences

The Implicit Association Test (IAT) is an intriguing thing. You might have heard of it, since Harvard has been running a pretty high-profile project using variations of the test for a while now, and the assortment of results certainly gives some food for thought from both psychological and sociological perspectives. The IAT is designed to test the associations that you make between things. These associations are implicit because they can even run contrary to your explicit opinions – they’re associations that your brain makes that you might not even be consciously aware of.

The overall idea is that when you have to process information about things that you implicitly don’t associate with each other, you’ll be slower at it than when you process information about things you do implicitly associate with each other. For example, you might be slower to respond to the word combination of “science/female” than to “science/male” because you might have the implicit association that science is more of a male thing. This doesn’t mean you’re a sexist and hold deeply ingrained discriminatory beliefs – it could easily be because of cultural and social influence that you’ve come to associate “science” with “male” more so than with “female”. You can be the world’s most super-informed, acutely passionate third-wave feminist and still have that implicit bias against “science/female”.

Anyway, the point is that using the IAT is a good way to understand what might be going on in people’s brains in a way that you couldn’t achieve just by asking “So how do you feel about this?”. (Disclaimer: there are plenty of caveats that go with using the IAT, which are more or less summed up here.)

As you might imagine, the test is pretty interesting to use in the consumer setting and it can present a novel view of how products or marketing or whatever might affect your implicit attitudes towards brands, behaviours, etc. That is something that Ratliff et al. investigated in their paper, ‘Does one bad apple(juice) spoil the bunch? Implicit attitudes toward one product transfer to other products by the same brand’. Ratliff and colleagues wanted to examine people’s attitudes towards products from the same brand, and how your attitude towards one product from a particular brand spills over to affect your attitude towards other products from that brand. In the first part of the study, the researchers wanted to check that you get this kind of spill-over effect, where having a positive attitude about one of the brand’s items positively affects your appraisal of other items from the same brand.

This was indeed the case – in the study, if people had a positive attitude towards a moisturising lotion of Brand A and a negative attitude towards a moisturing lotion of Brand B, and were then presented with totally neutral and equivalent descriptions of a deodorant from Brand A and a deodorant from Brand B, they of course preferred the Brand A deodorant, even though the information they had about the two deodorants was ostensibly identical. In this case there was implicit and explicit attitude transfer, with participants preferring the deodorant of the positively perceived brand both when tested with the IAT and when filling out a scale to rate how they felt about the deodorants.

But of course, we wouldn’t be evaluating that deodorant in a vacuum, so to speak – we usually have some degree of positive or negative information about a product already, like whether it contains ingredients we’d prefer to avoid or whether its quality doesn’t seem all that great or whether it ticks all the boxes we want it to. So what happens when you like one product from a brand, and then have to evaluate another product, which either seems good or not so good? Does that pre-existing positive attitude about a brand’s product influence your evaluation of that other product? Does liking that one other item from the brand mean that you perhaps evaluate a bad product more positively than you otherwise would have?

To start with, participants read information about taste tests and were thus induced to have a positive attitude towards Brand A of apple juice and a negative attitude towards Brand B of apple juice. Participants then evaluated orange juices by these brands based on written descriptions of taste tests, the results of those taste tests being either positive or negative.

The results? When attitude to Brand A apple juice was positive, and then positive information about Brand A orange juice was presented (and negative information about Brand B orange juice was presented), participants explicitly preferred Brand A orange juice over Brand B. When attitude to Brand A apple juice was positive, but negative information about Brand A orange juice was presented (and positive information about Brand B orange juice was presented), participants explicitly preferred Brand B orange juice over Brand A. So even though Brand A’s apple juice was great, participants didn’t let it colour their appraisal of how Brand A’s orange juice was not good.

The interesting thing here is that these explicit preferences do not match up with participants’ implicit preferences. When attitude to Brand A apple juice was positive, and Brand A orange juice was presented as kind of bad (and Brand B orange juice as kind of good), people still implicitly preferred Brand A orange juice. Their attitude towards the apple juice was colouring their appraisal of the orange juice by the same brand, even though they seemed to know at a more explicit level that they shouldn’t let their judgement be swayed like that.

That’s the power of liking a brand’s product – to some extent, at some level below conscious awareness, your brain is still saying that the brand’s other products must be good, even in the face of negative information about those other products.

We can’t know from this study whether these implicit biases have particular consequences or behavioural outcomes (e.g. does having this implicit bias mean that people are more likely to actually buy the poorer product, or would the explicit attitudes prevail when it comes to making that purchase decision?) and there are plenty of other factors to consider when interpreting the results (e.g. the results might very likely be different if the participants formed their own attitudes rather than getting them by reading about other people’s opinions from taste tests). But it’s incredibly interesting to consider the extent to which we could be unconsciously influenced by brand preferences, regardless of other information that might provide a better basis for our judgement.

Beyond the Purchase

Just as I decide to re-focus this blog a little more closely on the empirical research behind consumption, the relationship between consumption and happiness or fulfillment, what factors play a role in inducing us to buy, what things influence consumer choices, etc., I discover a site that’s already doing that, and indeed has been doing it for a while. And is actually a project by a research lab in San Francisco. And I found them while trying to track down a paper I wanted to blog about and their blog entry on the paper was one of the first search results I got.

The site is called Beyond the Purchase and you can find their blog here. The well-populated archives are comprised of posts that discuss plenty of very interesting research papers and findings. Back on the main website, they have some questionnaire scales that assess various factors that influence your own buying habits, so maybe register and have a go at some of those and see what you find out about yourself that you might not have explicitly known.

Brand attachment and judging ethical behaviour

I’ve written previously about the gap that seems to exist between consumers’ ethical values and consumers’ actual, practical application those ethical values. Even though a lot of us would like to buy in a more ethical and sustainable way, when it comes down to it, we sometimes (or perhaps frequently) don’t. Of course, there are plenty of factors that affect whether we enact our desire to consume more responsibly – the availability of sustainable items, the cost (relative to alternative items and relative to one’s own budget), the quality and range of more responsible options, etc.

Another thing that affects purchasing in general is, of course, brand attachment. Attachment in this context results in brand loyalty and commitment and willingness to pay higher prices to obtain that brand’s products. This is what pretty much every company and brand will be aiming for, so you can be sure that they’re doing what they can to facilitate brand attachment. How attached you are to a brand depends on the affective experiences it offers you (so what emotions it induces in you) and brand characteristics (for example, whether it seems to share values with you, whether it seems to have a brand personality that matches yours, etc.), among other things. But what are the consequences of being attached to a brand? Well, one of them, as investigated by Schmalz and Orth (2012), is how brand attachment influences people’s reactions to unethical behaviour by the company, firm or brand they’re attached to.

Does brand attachment shelter brands from negative publicity? Are brand devotees willing to overlook unethical behaviour, and if they are, to what extent? It’s interesting to think about these questions, given the pretty frequent media reports of relevant occurrences of unethical behaviour. The examples in Schmalz and Orth’s paper include when Nokia moved one of their production facilities from Germany to Romania to take advantage of cheaper labour (and German consumers got rid of their Nokia phones in protest); when Apple was exposed as having used covert video recording of employees in an attempt to reduce theft; and when it was found out that suppliers were plucking live geese to obtain down for a range of Ikea products. Obviously there are plenty of cognitive biases to help us deal with the cognitive dissonance of buying from brands even when we strongly disapprove of their actions, but what role does brand attachment play?

The researchers were interested in the extent to which brand attachment influenced consumer judgement, so they wanted to have two different levels of “unethical” behaviour – moderately unethical and highly unethical – and to see if brand attachment influenced judgement of the unethical behaviour differently between the two levels. What’s the difference between moderately and highly unethical behaviour? In this study, moderately unethical behaviour was when a brand engaged in negative behaviour but then offered some sort of compensation, whereas highly unethical behaviour was when the brand engaged in negative behaviour and didn’t offer compensation. This is one of the hypothetical example scenarios from the paper:

Coca-Cola has announced intentions to build a new plant. Space for the new plant will be allocated from a local nature reserve. While the German Society for Nature Conservation (NABU) has voiced strong concern about likely damage to the breeding grounds of red-listed white stork, Coca-Cola emphasizes that it will bring 2000 new jobs to the economically underdeveloped region.

Moderately unethical scenario:
To assuage project opponents, Coca-Cola states that even more jobs will be created in the near future through a projected increase in the plant’s output over the next years.

Highly unethical scenario:
Opponents of the project argue that the net job creation will be zero as Coca-Cola merely shifts production from one region to another.

Opinions of whether those two scenarios really are moderately and highly unethical, respectively, will vary hugely, but overall what the researchers were interested in was the difference between the moderately unethical scenario and the highly unethical scenario. So even if you personally thought that neither scenario was particularly unethical, or both were highly unethical, it’s still likely that you’d evaluate the second one more negatively than the first one.

And perhaps unsurprisingly, it turns out that brand attachment does shield a brand from negative evaluation from consumers, but only when behaviour is moderately unethical – not when it is highly unethical and without any mitigating circumstances. When you’re strongly attached to a brand and they do something moderately unethical, you don’t judge them as harshly as someone who is only weakly attached to the brand. However, when the brand does something highly unethical, strongly attached people judge them just as harshly as weakly attached people. Developing customer loyalty therefore softens the blow for brands when they do something generally considered to be moderately unethical, but it won’t protect them if they do something objectively awful.

However, there’s another factor at play here that probably makes an immeasurably huge difference – the country of the people in the study and the country where the hypothetical unethical scenarios are set. This study was conducted in Germany and the scenarios were all about hypothetical events that occurred in Germany. It’s not relevant that it’s Germany specifically, but it is relevant that the unethical events are occurring in the same country as the people being asked to judge the unethical events. I think the results might have been different if the country in which the events occurred was different (geographically and/or culturally) from the country in which people were being asked to make the judgements. Limited familiarity with another country and its culture and standards of living make it more difficult to judge (or perhaps easier to dismiss, unfortunately). Consequently, maybe a brand could get away with unethical behaviour on the other side of the world, and the person making a judgement of the unethical behaviour won’t feel so personally impacted and therefore brand attachment might trump even highly unethical behaviour.

People’s attachments, whether to brands or to other people or to whatever, are complex and dynamic, so future research needs to investigate the other factors that influence the relationship between brand attachment and judgement of unethical behaviour.