WANT TO SPEND LESS? DITCH YOUR CREDIT

CARD AND DON’T SHOP WHEN SAD

Ellie Isaacs, Stephanie Dampney, Jessica Brunt, Emily Giblin

Research Paper 1

Always Leave Home Without It: A further investigation of the Credit- Card Effect on Willingness to Pay.

Prelec & Simester (2001)

Research Paper 2

Misery is not Miserly- Sad and Self- Focused Individuals Spend More.

Cryder, Lerner, Gross & Dahl (2008)

Background

Credit cards encourage spending Don’t shop when sad Payment by cash activates the insula

(disgust region) where as credit card use does not.

Always Leave Home Without It: A further investigation of the Credit- Card Effect on Willingness to Pay. Prelec & Simester (2001)

People who use credit cards make larger purchases per department store visit

Paying by credit card encourages a larger tip at a restaurant

Credit Card Premium- hypothetically willingness to pay between 50-200% more

Anchoring: base cash valuations on what you have in your wallet, and credit card valuations on your card limit or average monthly bill.

Always Leave Home Without It: A further investigation of the Credit- Card Effect on Willingness to Pay. Prelec & Simester (2001)

Study 1- Are customers willing to spend more on a product when using a credit card?

Study 2- Does this only arise when the market price of the product is unknown?

Prelec & Simester (2001) - Study 1 Method

Auctioned for the following prizes (prices unknown):

1. One pair of 3rd row balcony tickets for Celtics-Miami game, Sunday April 19, 1PM, at the Boston Garden.

2. One pair of bleacher tickets for Red Sox-Toronto game, Sunday April 19, 1PM, at Fenway Park.

3. Consolation prize of one Celtics and one Red Sox banner.

Reservation values generated from second price sealed bid auction.

Prelec & Simester (2001) - Study 1 Results

Prelec & Simester (2001) - Study 2 Method

Bidding for restaurant certificate for up to $175, to be used on a single occasion within the next three months. The certificate may be used to purchase any food or beverages on the menu, and may include payment for taxes and a gratuity

Investigated whether exposure to logo resulted in higher bids

Restaurant was well known local landmark, within 3-4 minutes of campus

Reserve values elicited by Becker- DeGroot Procedure.

Prelec & Simester (2001) - Study 2 Results

Prelec & Simester (2001) - Discussion

Cash condition $25 Credit Card Condition $41 Those exposed to credit card logos paid

significantly more.

Prelec & Simester (2001) - Critique

All MBA students Relatively small sample (64 participants) Done in a classroom, not a classic spending

environment Done at lunchtime, associations with hunger (Read

& Leeuwen, 1998) Shouldn’t use Becker-DeGroot model alone (Lieven

& Lennerts, 2012) For the credit card condition, giving their card

details may have put them in the mind-set to spend

Didn’t take individual wealth into account (Hayhoe, Leach, & Turner, 1999)

Anchoring

Misery is not Miserly- Sad and Self- Focused Individuals Spend MoreCryder, Lerner, Gross & Dahl (2008)

“A man’s Self is the sum total of all that he CAN call his, not only his body and his psychic powers, but his

clothes and his house… His lands and horses, and yacht and bank-account. All these things give him the

same emotions.” (James, 1890, p. 291)

Misery is not Miserly Effect is the tendency for sadness to carry over from past situations to effect unrelated economic decisionsValence based and mood- congruent theories of decision making would lead to suggest that negative mood would lead us to devalue what we perceive. This study shows the opposite.

Cryder, Lerner, Gross & Dahl (2008)- Aims

Two Aims: Does self- focus moderate the misery- is-

not- miserly effect? Does self- focus mediate the misery- is-

not- miserly effect?

Cryder, Lerner, Gross & Dahl (2008)- Method

Emotion Induction Sad- condition Neutral- condition

Self- Focused Essay Buying Task Manipulation Checking & Debriefing Demand Awareness Questions

Cryder, Lerner, Gross & Dahl (2008)- Results

Sad- condition participants set higher buying prices than the neutral condition participants (Sad said $2.11 vs Neutral said $0.56, with a p value of 0.001)

Buying prices did not vary with emotion conditions at low levels of self- focus, but being in the sadness condition was positively associated with buying prices at high levels of self- focus

Significant interaction between self- reported sadness and self-focus.

Cryder, Lerner, Gross & Dahl (2008)- Results

Buying price affected by high level of self focus in the sad condition.

Cryder, Lerner, Gross & Dahl (2008) - Results

Significant interaction between self- reported sadness and self- focus

Cryder, Lerner, Gross & Dahl (2008) - Results

Cryder, Lerner, Gross & Dahl (2008) - Discussion

Found that self- focus plays both a moderating and a mediating role in the relationship between sadness and buying price

Misery- is- not- miserly effect occurs only when self- focus is high

Connects with James’ (1890) findings.

Cryder, Lerner, Gross & Dahl (2008) - Critique

Only 33 participants Regression Analysis should have 200

people (Cooley and Lohnes, 1971) Demographic not very representative Money incentive (all paid $10 on arrival) Still had to quote buying price even if no

intention of buying Didn’t have a happiness condition which

could mean that any emotional valence affects buying price (County, 1987).

Comparison of Paper 1 & 2

SimilaritiesBoth used participants aged 30 and underCant generaliseBoth looking at ways of spending lessBoth have sense of identification

DifferencesPayment in paper 2Looking at different aspects of spending- emotional vs physical

General Discussion

Apparent link between spending method and amount spent

Apparent link between spending when sad and amount spent

Insula – disgust- cash Nucleus Accumbens- pleasure- card

Real World Implications

Weekly budget Don’t take credit card out Lunches coming out of pay packet rather

than paying for them in cash Can’t necessarily generalise from buying

a water bottle or sports tickets compared to real world larger scale purchases ie. House or car

References

Aknin, L. B., Dunn, E. W., & Norton, M. I. (2012). Happiness runs in a circular motion: Evidence for a positive feedback loop between prosocial spending and happiness. Journal of Happiness Studies, 13(2), 347-355.

Becker, G. M., DeGroot, M. H., & Marschak, J. (1964). Measuring utility by a single‐response sequential method. Behavioral science, 9(3), 226-232.

Begley, S. (2008). Inside the shopping brain. Newsweek, 152(24), 18. Cooley, W. W., & Lohnes, P. R. (1971). Multivariate data analysis. J. Wiley. County, B. (1987). Positive affect, cognitive processes, and social

behavior. Advances in experimental social psychology, 20, 203. 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), 525-530.

Dunn, E. W., Aknin, L. B., & Norton, M. I. (2008). Spending money on others promotes happiness. Science, 319(5870), 1687-1688.

References Hayhoe, C. R., Leach, L., & Turner, P. R. (1999). Discriminating the

number of credit cards held by college students using credit and money attitudes. Journal of Economic Psychology, 20, 643-656.

Lerner, J. S., Small, D. A., & Loewenstein, G. (2004). Heart strings and purse strings carryover effects of emotions on economic decisions. Psychological Science, 15(5), 337-341.

Lieven, T., & Lennerts, S. (2012). Measuring Willingness to Pay by Means of the Trade-off between Free Available Cash and Specific-Purpose Vouchers. Business Research Official Open Access Journal of VHB.

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.

Read, D., & Leeuwen, B. V. (1998). Predicting Hunger: The Effects of Appetite and Delay on Choice. Organizational Behaviour and Human Decision Processes, 76(2), 189-206.

Soman, D. (2001). Effects of payment mechanism on spending behavior: the role of rehearsal and immediacy of payments. Journal of Consumer Research,27(4), 460-474.

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