Want to spend less? Ditch the credit card and don’t shop when you are sad

Want to spend less? Ditch the credit card and don’t shop when you are sad

S. BegleyVerity Barter, Andrew Bisby, Paddy Cullen, Gabrielle Gunn, Dan Mackinnon and Max Redmond Roche

• Begley – An American Journalist who focused on consumer psychology

• Prelec, D., & Simester, D. (2001). Always Leave Home Without It. A Further Investigation of the Credit-Card Effect on Willingness to Pay. Marketing Letters, 12, 1, 5 - 12.

• Cryder, C.E., Lerner, J.S., Gross, J.J., & Dahl, R.E. (2008). Misery is not Miserly: Sad and Self - Focused Individuals Spend More. Psychological Science, 19, 6, 525 - 30.

ALWAYS LEAVE HOME WITHOUT IT…PRELEC, D., & SIMESTER, D. (2001).

• It is claimed that credit cards encourage spending

• Feinberg (1986) – credit card premium

• But there are still questions to be asked…

HYPOTHESIS

People are willing to spend more when using a credit card than when paying with cash

Two studies:•Study 1 – real money transactions, for highly desirable goods

Prelec, D., & Simester, D. (2001).

STUDY 1 - METHOD

• 2 pairs of sports tickets and a consolation prize • MBA students at MIT - $2 for taking part.• Cash vs card• Predicted that participant would be willing to pay more by credit card

than by cash.

Prelec, D., & Simester, D. (2001).

STUDY 1 – RESULTS

All 3 prizes – higher values for the credit card condition

•BUT... Depended on whether mean/median was compared.

•Only the Basketball tickets showed a significant difference for the mean and the median.

Prelec, D., & Simester, D. (2001).

STUDY 2• Different anchoring points for cash and credit cards?

• Value was known and so acts as the anchor.

• They also wanted to see if exposure to credit card logos would increase willingness to pay.

• They auctioned a $175 restaurant voucher to MBA students.

Prelec, D., & Simester, D. (2001).

STUDY 2 - METHOD

Participants were split into four groups:1.Paid by cash but were not exposed to logos2.Paid by cash and were exposed to logos3.Paid by credit card but were not exposed to logos4.Paid by credit card and were exposed to logos

Participants made a sealed bid for the voucher

Prelec, D., & Simester, D. (2001).

STUDY 2 - RESULTS

Prelec, D., & Simester, D. (2001).

CONCLUSIONS

• No theory explaining the presence or size of the credit card premium in study 1 is given

• Not about how much you can afford to pay

• Payment method only has a significant effect on those exposed to credit card logos

• No evidence that exposure to credit card logos increases willingness to pay

Prelec, D., & Simester, D. (2001).

WE SUGGEST…

• Willingness to pay and the credit card premium may be due to desirability of the prize

• Include a ‘cash instalments’ group

• What about debit cards?

• Age ranges and financial backgrounds

Prelec, D., & Simester, D. (2001).

MISERY NOT MISERLY…CRYDER, LERNER, GROSS, DAHL (2008).

•James (1890) “material goods define the self”

•But is the misery-not-miserly effect consistent with this theory?

•Previous research has found that when participants are not self focused, emotion does not affect spending. (Salovey, 1992; Wood, Saltzberg & Goldsamt, 1990)

Cryder, Lerner, Gross, Dahl (2008).

• Sadness increases the amount of money that people are prepared to spend on a commodity.

• 33 participants recruited by advertisement and offered $10 for taking part

• Emotion Induction• Self-focused essay• Buying Task

Cryder, Lerner, Gross, Dahl (2008).

RESULTS• Sad-condition bid more than neutral condition• Only when self-focus was high• Self focus explains the effect

Cryder, Lerner, Gross, Dahl (2008).

CONCLUSIONS

• Sadness has an effect on spending only when self-focus is high

• Self-enhancement or self-value?

• Future research

Cryder, Lerner, Gross, Dahl (2008).

WE SUGGEST…

• Only one stimulus used

• Sample size too small but representative of wider population

• $5 Incentive good idea but hard to quantify responses

• What about happy people?

Cryder, Lerner, Gross, Dahl (2008).

OVERALL CONCLUSIONS• Pay by cash not credit card…

• …and don’t shop when sad

• More important to be aware of your own spending habits

• Further research

REFERENCES

• Cryder, C.E., Lerner, J.S., Gross, J.J., & Dahl, R.E. (2008). Misery is not Miserly: Sad and Self - Focused Individuals Spend More. Psychological Science, 19, 6, 525 - 30.

• James, W. (1890). Principles of Psychology. New York: Holt.• Prelec, D., & Simester, D. (2001). Always Leave Home Without It. A Further Investigation of the Credit-Card Effect on

Willingness to Pay. Marketing Letters, 12, 1, 5 - 12. • Salovey, P. (1992). Mood-induced self-focused attention. Journal of Personality and Social Psychology, 62, 699–707.• Soman, Dilip. (1999). Effects of Payment Mechanism on Spending Behavior: The Illusion of Liquidity. Working Paper,

Hong Kong University of Science and Technology, Hong Kong.• Wood, J.V., Saltzberg, J.A., & Goldsamt, L.A. (1990). Does affect induce self-focused attention? Journal of Personality

and Social Psychology, 58, 899–908.