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Psychology & Marketing, Vol. 19(9): 777–782 (September 2002)Published online in Wiley InterScience (www.interscience.wiley.com)� 2002 Wiley Periodicals, Inc. DOI: 10.1002/mar.10035

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Do Money-Earning Timeand Money-ExchangingRoute Matter?Shu LiNanyang Technological University

ABSTRACT

This article explores whether the route via which the money form ischanged (i.e., money–cash–money versus money–token–money) andthe timing at which the money is earned (i.e., before performanceversus after performance) play a role in influencing people’swillingness to part with money. Two studies, with 125 and 253subjects, respectively, showed that the route indeed had an effect onthe spendability of the dollar in hand and that the timing of earningdid affect the proclivity to spend the earned money. These resultsadd to a growing body of evidence for the possible violation of thefundamental economic assumption of fungibility. � 2002 WileyPeriodicals, Inc.

Normative economic theory suggests that the consumer might considerthe purchase of goods and services to be a contest between the worth ofthe dollar in hand and the worth of the item to be bought. The purchaseshould be made if the item is deemed more valuable than the dollar,whereas the purchase should not occur if the dollar is considered to beworth more than the item. However, psychological studies on windfallgains (Arkes, Joyner, & Pezzo, 1994) suggest that the axiomatic natureof this analysis is questionable and that the history of the dollar seemsto influence the subject’s willingness to part with it—windfall gainsappear to be spent more readily than nonwindfall gains.In this research, the history of the dollar in hand is traced from two

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perspectives: where and when. In particular, the source of money is notdistinguished by the windfall gains (as the earnedness or anticipationof money discussed in Arkes et al., 1994) but by the money-earning timeand money-exchanging route. It is intended to further enhance the un-derstanding of how the source of the funds influences consumers’ pref-erences.A so-called willingness to buy (WTB) technique was utilized in this

research to measure the degree to which the money in hand is spentmore readily. Instead of asking subjects to indicate to buy or not to buy,subjects were instructed to set a maximum buying price for the goodsunder consideration. The rationale of using such a pricing method isthat the cash keeper will set a higher maximum buying price if w(cash)� w(goods) or a lower maximum buying price if w(cash)�w(goods). Forthe purchase of the same goods, the higher the maximum buying price,the more spendable the cash in hand is.In normative economic theory, it seems acceptable that the worth of

money paid for goods/services could vary depending on the time of pay-ment. That is, if one can fulfill the full payment for a purchase in ad-vance, a discount is likely to be granted (i.e., terms of trade clause ininvoice). However, it is a rational requisite that the worth of dollar inhand should not vary regardless of whether themoney used for paymentis earned earlier or later.On the other hand, traditional economic theory tends not to make an

objection that the worth of money paid for goods/services varies de-pending on the form of payment. That is, if one paid cash instead of oncredit, a discount is likely to be granted (i.e., lower cash-and-carry priceas compared to credit payment for the same goods/services). 1 Neverthe-less, there is no obvious economic reason that the worth of money shouldvary if the form of money used for payment is the same, at the momentof transaction.A bold hypothesis inspired by the Arkes et al. (1994) findings is that

the timing and form, which presumably did not affect the purchase de-cisions alluded to in the preceding paragraphs, will also be taken intoaccount when faced with the purchase problems in a real-world situa-tion. The psychology of money-earning time and the psychology of themoney-exchanging route will thus influence whether the money in handis spent more readily or not. To test this, the following two studies weredevised.The first concerns a hypothetical decision to purchase a Casio watch,

given that the money in hand has traveled via different routes. Thesecond concerns a decision to purchase a box of chocolates given thatmoney in hand was earned at a different time.

1Another example would be the Tversky and Kahneman (1981) manipulation of buying a theaterticket given that subject has lost either a $10 bill or a ticket worth $10.

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STUDY 1

Method

Subject. In order to guarantee that the subjects fully understood themeaning of different forms of money (tokens versus coins) that were tobe manipulated in this experiment, a total of 125 Singaporean subjectswho had visited a games arcade, such as Wywy Wonderspace, at leastonce a month, were recruited to participate in this study.

Materials and Procedure. The questionnaire was presented to sub-jects in booklets. Each subject responded only to the one questionnaireto which he or she was randomly assigned, answering either Question-naire 1A or 1B. The number of respondents is indicated after each ques-tion. The purchasing problem read as follows:

Questionnaire 1A

Suppose you went to YY Games Arcade one day. You took out $50 andchanged it into one hundred 50¢ coins to play. However, after walkingfor a few rounds, you decided not to play anymore and went home,putting the coins aside. 3 months later, you rediscovered these coinsand you are ‘richer’ by $50! You recalled that there is a Casio watch(which cost around $30 to $50) you want to buy, but you have not, asyou are cash strapped. You decided that now is the time you are goingto get it. What is the maximum price at which you would be willing tobuy this Casio watch? (N � 65)

Questionnaire 1B

Suppose you went to YY Games Arcade one day. You took out $50 andchanged it into one hundred 50¢ worth of tokens to play. However, afterwalking for a few rounds, you decided not to play anymore and wenthome, putting the tokens aside. 3 months later, you rediscovered thesetokens. You decided to go down to YY Games Arcade to use up thetokens. However, upon arrival, you found out that YY Games Arcadeis closing down soon and the management announced that they arecollecting back all their tokens and would provide a full refund. Thishas never happened in the past, as the policy that “tokens exchangedare non-refundable” is commonplace. Immediately, you exchanged yourtokens back to cash and you are ‘richer’ by $50! You recalled that thereis a Casio watch (which cost around $30 to $50) you want to buy, butyou have not, as you are cash strapped. You decided that now is thetime you are going to get it. What is the maximum price at which youwould be willing to buy this Casio watch? (N � 60)

Questionnaires 1A and 1B differ in that the dollar in hand has trav-eled via different route: $50 cash : $50 coin : $50 cash in Question-naire 1A while $50 cash: $50 token: $50 cash in Questionnaire 1B.

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Results

An analysis comparing the two money-traveling routes exhibited amarked pricing difference. Game players who had the tokens refundedwere more likely to buy the same Casio watch at a higher price (M �$42.16) than those who found the coins (M � $39.28). This differencewas statistically significant, t(123) � 2.03, p � 0.05. It appears thatthe tendency to set a maximum buying price is different accordingto whether the player is spending tokens-refunded or cash-refundedfunds.

STUDY 2

Method

Subject. A total of 253 male and female Singaporeans volunteered toparticipate in this study. Subjects were from all walks of life, rangingfrom students to working adults, from 18 to 57 years of age.

Materials and Procedure. Questionnaires 2A and 2B were presentedto subjects in booklets. No subjects responded to more than one ques-tion. The completed questionnaires were collected before Christmas of2000. The number of respondents is indicated after each question.

Questionnaire 2A.

Suppose you are a waiter/waitress in a restaurant. A customer askedyou to serve his/her table first, as it is his/her birthday. You did whathe/she said. Shortly after, he/she handed you a $20 note to thank you.On your way home, you suddenly remember that you need to get aChristmas present. How much would you spend on getting a box ofchocolates for your friend? (Note: A box of chocolates costs between $5and $20). (N � 131)

Questionnaire 2B.

Suppose you are a waiter/waitress in a restaurant. A customer askedyou to serve his/her table first, as it is his/her birthday. He/She handedyou a $20 note to thank you in advance. You did what he/she said. Onyour way home, you suddenly remember that you need to get a Christ-mas present. How much would you spend on getting a box of chocolatesfor your friend? (Note: A box of chocolates costs between $5 and $20)(N � 122)

The only difference between Questionnaire 2A and Questionnaire 2Bis the order that the dollar in hand was earned: $20 was earned beforeserving in Questionnaire 2Awhile $20 was earned after serving inQues-tionnaire 2B.

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Results

Answers to the twomoney-earning occasions exhibited amarked pricingdifference. Participants were more likely to set a higher buying price fora box of chocolates when receiving $20 before doing their job (M �$15.48) than when receiving $20 after doing their job (M� $14.08). Thisdifference was statistically significant, t(251) � 2.07, p � 0.05. It ap-pears that the tendency to set a maximum buying price is different ac-cording to whether the participant is spending early-earned or late-earned funds. This result, together with that obtained from the firststudy, demonstrates an additional violation of the fundamental eco-nomic assumption of fungibility—the proposition that the source ofmoney should make no difference in its consumption (von Neumann &Morgenstern, 1947, p. 8).

GENERAL DISCUSSION

The research reported here is a response to the proposal of Arkes et al.(1994) that the history of the dollar influences an individual’s willing-ness to part with it. It is hypothesized that the money-earning time, aswell as the money-exchanging route, would influence consumer’s pur-chase decision in a way much like the windfall gain did.In determining what defines a gain as a windfall, it has become com-

monplace to acknowledge that the key feature of windfall gains is thatsuch gains are unearned. According to Arkes et al. (1994), a definingcharacteristic of a windfall gain seems to be its unanticipated status. Itis worthwhile to note that, although the present research also find thatthe history of the dollar seems to influence subject’s willingness to partwith it, these supportive findings were found without manipulating ei-ther the earnedness of money or the anticipation of money. Through thetwo studies, the hypothesis is supported that both the money-earningtime and money-exchanging route have an influence on purchasinggoods in consideration.It can be seen that, in Study 1, subjects are spending cash more read-

ily when the money used to be tokens than when the money used to becoins, with the cash in hand being unanticipated (i.e., rediscovered in 3months) and unearned (i.e., player’s own) in both cases. This demon-stration of the history effect is considered to be particularly noteworthy,because it is a newly added route to look into the history effect. A pos-sible explanation for this is that the psychological form of money is socompelling that the historical form will last until the moment of trans-action.In Study 2, on the other hand, subjects are spending cashmore readily

when paid early than when paid late, with the cash in hand in bothcases being earned (i.e., paid by the customer) and unanticipated (i.e.,

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there is no tipping culture in Singapore, as most food and beverageoutlets already impose a service charge of 10%). A post hoc explanationis that, in the language of the reinforcement theory (Skinner, 1971), themoney earned after performance (serving the table) might be seen as areward, whereas the money earned before performance might not beregarded as a reward but as a bribe. Perhaps, a bribe is spent morereadily than a reward.These results imply (a) that the purchase of goods and services would

be more likely to be made in countries or areas that are ranked higherin corruption than countries or areas that are ranked lower (such anordering might be the one ranked by WATCHDOG body TransparencyInternational), and (b) that the purchase of goods and services would bemore likely to be made when the money in hand is exchanged from aless liquid form (e.g., Iraq dinar) than when the money in hand is ex-changed from a more liquid form (e.g., U.S. dollar). To test the assump-tion of fungibility experimentally, the present exploration could provideus with a new guidance as to the route further research might take.

REFERENCES

Arkes, H. R., Joyner, C. A., & Pezzo, M. V. (1994). The psychology of windfallgains. Organizational Behavior and Human Decision Making Processes, 59,331–347.

Skinner, B. F. (1972). Beyond freedom and dignity. London: Cape.Tversky, A., & Kahneman, D. (1981). The framing of decisions and the psy-chology of choice. Science, 211, 453–458.

von Neumann, J., & Morgenstern, O. (1947). Theory of games and economicbehavior. Princeton: Princeton University Press.

The author is grateful to LIM Lee Keng, NG Li Ching and Ivy SOH Hwee Funfor their help in the construction of the questionnaire scenarios and data col-lection.

Correspondence regarding this article should be sent to: Shu Li, NanyangBusiness School, Nanyang Technological University, Singapore 639798(asli@ntu.edu.sg).