Thesis Format

Integrated Article

Two Essays on Everyday Financial Decisions

Poornima Vinoo, The University of Western OntarioFollow

Degree

Doctor of Philosophy

Program

Business

Supervisor

Duclos, Rod

Abstract

Every day consumers make numerous financial decisions which have the potential to increase or decrease their wellbeing in the short-term or long-term. For instance, choosing to pay only the minimum due on a credit card bill can increase liquidity and wellbeing in the short-term, but increase debt and decrease wellbeing in the long-term. My work examines two such instances of everyday financial decisions which influence consumer wellbeing. In Essay 1, I use experiments to examine how the design of retirement savings investment plans can influence the choices consumers make, thus setting them up for comfort or hardship in their retirement. Specifically, I look at how investment decisions are influenced by choice-set size and whether the funds are presented in ascending or descending order of risk. I find that when presented with large choice-sets, consumers who see safer funds first take on lower risk than consumers who see riskier funds first. This happens because consumers get overwhelmed and engage in biased search behaviour. Interestingly, this difference is mitigated when consumers are more financially literate. In Essay 2, I look at a phenomenon, where consumers voluntarily incur a financial loss and improve their wellbeing. I use experiments to examine situations where consumers who are trying to sell an item receive an unfairly low (lowball) offer. In response to this lowball offer, consumers often voluntarily incur a financial loss by choosing to donate the item. I find that consumers choose to donate, as they receive moral rewards that compensate for the loss of financial rewards, but that these moral rewards are received only if they believe the recipient of the donation will value the item at a price much higher than the lowball offer they received. Findings from both these essays can improve consumer wellbeing by providing businesses with insights on how to design choice options that are optimal for consumers, and policymakers with information they can use when designing policies regarding consumer finances and the environment.

Summary for Lay Audience

Consumers make many financial decisions every day, each of which can possibly increase or decrease their wellbeing in the short-term or long-term. For instance, choosing to pay only the minimum due on a credit card bill can increase liquidity and wellbeing in the short-term, but increase debt and decrease wellbeing in the long-term. My work examines two such instances of everyday financial decisions which influence consumer wellbeing. In Essay 1, I look at how investment decisions for retirement are influenced by the number of investment options consumers are shown, as well as which options are at the top of the list. I find that when presented with large choice-sets of investment funds, consumers who see safer funds first take on lower risk than consumers who see riskier funds first. This happens because consumers get overwhelmed by too many options and mostly focus on the funds at the top of the list. Interestingly, when consumers are more financially literate, their investment choices are not influenced by these factors. In Essay 2, I find that when consumers receive an unfairly low (lowball) offer when they are trying to sell an item, they often voluntarily incur a financial loss by choosing to donate the item. This happens because consumers who choose to donate, receive moral rewards that compensate for the loss of financial rewards they could have received if they sold the item. I also find that consumers receive these moral rewards only if they believe the recipient of the donation will value the item at a price much higher than the lowball offer they received. Findings from both these essays can improve consumer wellbeing by providing businesses with insights on how to design choice options that are optimal for consumers, and policymakers with information they can use when designing policies regarding consumer finances and the environment.

Recommended Citation

Vinoo, Poornima, "Two Essays on Everyday Financial Decisions" (2022). Electronic Thesis and Dissertation Repository. 8539.
https://ir.lib.uwo.ca/etd/8539