Financial Resources and Consumer Decision Making

Abstract

Consumers often feel financially constrained. Feelings of resource insufficiency have become even more prevalent in the current economic environment marked by rising inflation and income inequality. Given the ubiquity of perceived resource insufficiency, this dissertation examines how financial constraints affect consumers along their decision-making journeys, from pre-purchase outcomes, preference and choice, to post-purchase outcomes. In the first essay, I show that financial constraints reduce the happiness consumers derive from their purchases. This happens because financially constrained consumers are more likely to consider opportunity costs when evaluating their purchases. Moreover, reduced purchase happiness causes financially constrained consumers to write more negative reviews for their purchases. In the second essay, I examine a tradeoff that consumers face when they have limited budgets for their purchases: choosing higher-quality or higher-quantity purchases. I demonstrate that consumers have consistent and stable preferences for quality or quantity, across domains, categories, and over time. Some consumers systematically prefer higher-quality purchases, while others systematically prefer higher-quantity purchases. I develop and validate a scale to measure these preferences and show that preferences for higher-quantity (vs. higher quality) purchases are associated with greater spending and more debt. In the third and final essay, I examine an outcome at the pre-purchase stage of the consumer journey: consumers’ expectations of future prices. I demonstrate that consumers who feel more financially constrained expect prices to be higher in the future, as compared to consumers who feel less financially constrained. This effect happens because financially constrained consumers are more likely to rely on their perceptions of current prices when forecasting future prices. Taken together, these three essays demonstrate that financial constraints have a meaningful impact on consumers’ judgments and decisions, shaping every stage of the customer journey.