2022: Creating a Lexicon of Future
W is for Windfall
A windfall is something (such as a tree or fruit) blown down by the wind or an unexpected, unearned, or sudden gain or advantage. ~ Merriam-Webster
Windfall gain (or windfall profit) is an unexpected gain in income which could be due to winning a lottery, unforeseen inheritance or shortage of supply. Windfall gains are transitory in nature. ~ Windfall Gains
The windfall effect states that people receiving a large lump sum of money may temporarily forget or ignore previous spending constraints, which can harm their longer-term financial health. In other words: when we get a lot of money all at once, our budget can go out the window.~ What is the windfall effect?
We hypothesized that windfall gains are spent more readily than other types of assets. Three questionnaire studies supported this hypothesis and led us to the conclusion that the unanticipated nature of windfall gains is responsible for their heightened proclivity to be spent. We then tested this hypothesis in two studies using actual money.
In both studies using money, one group of students was told 1 to 5 days before an experiment that they would be paid for their participation, whereas another group was told about the money only after they arrived at the experiment. In the first of the cash studies, those who were given no forewarning of the money bet significantly more during a gambling game than did those who anticipated the payment. In the second cash study, those who did not anticipate the money spent more money at a basketball game than did those who anticipated the money. We relate the results of these studies to economic theories and to theories of choice. ~ The Psychology of Windfall Gains
