Explanations of effects of prior income changes on buying decisions

Two experiments with undergraduates as subjects tested explanations of how a prior temporary income change influences choices between buying and defer red buying. In Experiment 1 predictions from the behavioral life-cycle theo ry (Shefrin & Thaler, 1988), the renewable resources model (Linville & Fisc her, 1991) and the loss-sensitivity principle (Garling & Romanus, 1997) wer e contrasted. The results are inconsistent with the latter two explanations since the framing of buying as positive (buying a new model of a product) or negative (replacing a broken product) did not interact with the income c hange. Congruent with the behavioral life-cycle theory, willingness to buy was greater when subjects received a temporary income increase than when th ey received a temporary income decrease although total assets were equal. F urther support for the behavioral life-cycle theory is obtained in Experime nt 2 where four income-change conditions and durable and nondurable goods a re compared. (C) 1999 Elsevier Science B.V. All rights reserved.