Cash or credit: Exploring the pain of paying
Studies suggest the farther you are away from "real" money, the easier it is to spend it.
When you pay cash, you can "feel" the money leaving your control. This isn’t true with credit cards. Flipping a credit card up on a counter registers nothing emotionally.
Chalk it up to a concept called the pain of paying, says Dan Ariely, the author of Predictably Irrational: Imagine that a restaurant, rather than charge $30 per meal, charges by the bite, with a waiter standing tableside ringing up each morsel. That reminder would make for an extremely unpleasant meal.
In one experiment at MIT, subjects were asked to bid on tickets to a sold-out NBA game. Half were told to pay with cash; the other half could use credit cards. Surprise, surprise: The bids were twice as high among the group that thought they had access to credit cards.
"Credit cards effectively anaesthetize the pain of paying," according to researchers at Carnegie Mellon University. "You swipe the card and it doesn't feel like you're giving anything up to make the purchase, unlike paying cash where you have to hand over bills."
In their study, subjects were each given $20 to spend on a series of products that would be shipped to them. If they didn’t buy anything, they could keep the money.
Using an MRI scanner, the researchers saw that the insula, a section of the brain associated with pain processing, sparked when subjects saw prices that were too high.
This suggests that pricing doesn’t deter spending purely through thoughts of foregone pleasures, as standard economic theory would suggest, but also through immediate pain, the researchers note.
And credit cards help take you just a bit farther from that discomfort.
Are you cash-only or card-only? Or do you mix up your spending? Does your buying behaviour change depending on what you use to make your purchase?
By Gordon Powers, MSN Money