The Effect of Ease of Estimation and Confidence on Budget Estimates

Consumers ’ budgets are influenced by the temporal frame used for the budget period. Budgets planned for the next month are much lower than recorded ex-penses, while those for the next year are closer to recorded expenses (study 1). The difficulty of estimating budgets for the next year imparts low confidence and leads to upward adjustment. When consumers ’ confidence in their estimates is increased (study 2), when their natural beliefs about the relationship between cog-nitive ease and accuracy are reversed (study 3), or when cognitive resources are constrained (study 4), consumers no longer adjust their budgets upward for the next year. When consumers plan their future spending, they oftenset budget limits for themselves. Budgeting involves creating distinct expense categories, earmarking money for the relevant fiscal period, and tracking expenses across these limits. Budgeting enables consumers to evaluate the afford-ability of goods and to allocate expenses among differen