Bottom Dollar Effect

What is the bottom dollar effect?

The bottom dollar effect is reduced satisfaction with a purchase when paying for it exhausts a budget, compared with a purchase that leaves money in that budget. Also described as a “last dollar” effect, it concerns spending to zero within an available budget. That need not mean losing all your money.

What the research found

Across six studies, Soster, Gershoff, and Bearden found evidence that the pain of payment helped explain the satisfaction difference. The effect was stronger when resources required more effort to earn and weaker with windfall funds or a shorter wait until the budget was replenished.

Example: spending the rest of an allowance

Two otherwise similar purchases may feel different if one uses the remainder of a discretionary allowance.

A mental budget can matter even when money remains in another account. But discomfort about using scarce resources is not automatically a decision error. The research concerns purchase satisfaction.

For the unpleasant experience associated with parting with money, see the pain of paying.

Source: The Bottom Dollar Effect: The Influence of Spending to Zero on Pain of Payment and Satisfaction.