Learning from the lab: Exploring how budget categories and opportunity costs affect overspending

Category reminders
Experiment Type
Improve budgeting & borrowing
Reduce expenses
Focus Areas
Lab Research
Behavioral Concepts
Salience Mental accounting

What Happened

It didn't work. Adding categories backfired, as participants in the treatment condition were signficantly more likely to spend on the temptation compared to the control condition.

Lessons Learned

This evidence suggests that making categories more salient may serve as a counterproductive reminder that could lead to more spending now.


Generally speaking, a budget refers to some system of financial categorization – we designate some portion of our income as relevant or applicable to some type of expense. This designation is helpful because it gives us insight into how much we are spending on groceries versus buying food out, but it also, potentially, helps us to make tradeoffs between categories. Most budgeting tools – from paper notebooks to phone apps – approach budgeting by accounting for expenses within categories (e.g. rent, groceries, entertainment, etc.).

The categories within a budget can vary a lot from one person to the next. We wondered whether the categories that someone uses in their budget might serve as a reminder of what other things you can buy with your money. In this study, we specifically investigate whether making opportunity costs more salient is likely to encourage someone to overspend on discretionary expenses.

Key Insights

We started exploring the connection between budgeting by conducting a literature review. We found that:

  • People manage their finances using both implicit labels and “real” labels in their mental accounting systems for expenditures (e.g. housing, food, etc.)

  • People are willing to reclassify expenses in order to justify spending. We are less willing to overspend on expenses that are unambiguous and harder to shift from one account to the next.


The existing evidence would suggest that when budget categories are more salient, reclassifying expenses is more difficult. Therefore, we hypothesize that increasing the saliency of an unambiguous expense’s opportunity cost will decrease participants’ likelihood to overspend on this temptation expense.

Participants were then presented with a summary of their recent expenses and asked how likely they were to purchase a take-out delivery order, even though doing so would put them over their budget for dining out when they have groceries at home. We randomly presented two different versions of the summary of their recent expenses to 400 participants.


We found that participants in the treatment condition were significantly more likely to spend on the temptation good compared to the control condition. In this case, increasing the saliency of account categories did not make participants less likely to overspend their budget. Instead, providing the relevant categories may have served as a reminder that people can adjust spending in other categories to license spending more now.