Shoppers spend less when they pay by cash

September 8th, 2008 - 1:19 pm ICT by ANI  

Washington, Sept 8 (ANI): Shopoholics are likely to spend more while using a credit or gift card than cash buys, says a new study by Indian origin researchers.
After conducting four studies, researchers Dr. Priya Raghubir of the Stern School of Business at New York University and Dr. Joydeep Srivastava of the Robert H. Smith School of Business at the University of Maryland, College Park, have come to the conclusion that cash discourages spending, and credit or gift cards encourage it.
During the study, the researchers focussed on two factors in purchasing behaviour: when consumers part with their money (cash versus credit) and the form of payment (cash, cash-like scrip, gift certificate or credit card).
“The more transparent the payment outflow, the greater the aversion to spending, or higher the ”pain of paying,”” said the authors.
In the first study involving 114 participants, the team 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 behaviour to the way cash can reinforce the pain of paying.
In their second study, the researchers looked at 57 participants” estimated food expenses for an imaginary Thanksgiving dinner item by item, rather than a holistic total.
When they did so, the cash-credit spending gap closed. When people confronted the detailed reality of expenses, it no longer mattered whether they used cash or something else.
The next two studies examined spending differences relative to mode, not timing.
In the third study, 328 participants given a detailed shopping list were found to spend more when they used a 50 dollars gift certificate instead of 50 dollars cash.
In the fourth study, 130 participants were given 1-dollar cash or a 1-dollar “gift certificate” to buy candy.
At first, they were more willing to spend the gift certificate than the cash. After holding the gift certificate in their wallets for an hour, thus treating it like cash, they became less likely to spend it — a sign that they had assimilated its value.
When researchers again highlighted the difference in transparency between cash and gift certificates, people reverted to their original behaviour.
“The studies suggest that less transparent payment forms tend to be treated like (play) money and are hence more easily spent (or parted with),” the authors wrote.
These findings appear in the September issue of the Journal of Experimental Psychology: Applied, published by the American Psychological Association. (ANI)

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