Monopoly Money: The Effect of Payment Coupling and Form on Spending Behavior (PDF; 321 KB)
Source: Journal of Experimental Psychology: Applied (via American Psychological Association)
From press release (APA):

There is fresh evidence that people spend less when paying cash than using credit, cash-equivalent scrip or gift certificates. They also spend less when they have to estimate expenses in detail.

These findings appear in the September issue of the Journal of Experimental Psychology: Applied, published by the American Psychological Association.

The conclusion that cash discourages spending, and credit or gift cards encourage it, arises from four studies that examined two factors in purchasing behavior: when consumers part with their money (cash versus credit) and the form of payment (cash, cash-like scrip, gift certificate or credit card). The results build on growing evidence that, as the authors wrote, “The more transparent the payment outflow, the greater the aversion to spending, or higher the ‘pain of paying.’” Cash is viewed as the most transparent form of payment.

Priya Raghubir, PhD, of the Stern School of Business at New York University, and Joydeep Srivastava, PhD, of the Robert H. Smith School of Business at the University of Maryland, College Park, asked participants to read various buying scenarios and answer questions about how much would they spend using cash versus various cash equivalents

In the first study, 114 participants estimated how much they would pay using various payment forms for a vividly described restaurant meal. The results showed that “People are willing to spend (or pay) more when they use a credit card than when using cash,” the authors wrote. They attributed the difference in spending behavior to the way cash can reinforce the pain of paying.

The authors also found that people who said they were more thoughtful in real life about amounts charged to credit spent less when using a fictitious card.

This entry was posted on Wednesday, September 17th, 2008 at 3:24 pm and is filed under Business and economics, Consumer issues. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.