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

Chris Barnes and Adam Kidson

Cryder, C.E., Lerner, J.S., Gross, J.J., & Dahl, R.E. (2008). Prelec, D., & Simester, D. (2001).

Contents

Introduction

Research paper 1 - Misery is not Miserly…

Research paper 2 - Always Leave Home Without It…

Linking the research papers to the Begley article

Conclusion

Introduction – Inside the shopping brain

2008 recession – Begley article looking at

psychology behind consumer spending.

Referenced 2 articles

―Cryder et al. (2008)

―Prelec & Simester (2000)

Misery is not Miserly - Rational

This article looks for empirical connections between the self and emotion in context of the misery is not miserly effect.

Effects of sadness on buying run counter to predictions

Sadness Increase in valuation of commodities.

Model of how sadness and self-focus influence valuation of material possession

Misery is not Miserly – Hypothesis, Prediction and Goals

Hypothesis ―That the experience of feeling sad and self focused

leads individuals to pay more for commodities than the other wise would.

Prediction ―When self-focus is high, sad individuals experience an

implicit devaluation of the self, which in turn triggers increased valuation of new commodities.

Primary Goal – Test two implications of model. ―Whether misery is not miserly effect depends on one’s

level of self focus.

―Whether self-focus explains the misery is not miserly effect.

Misery is not Miserly - Methods

3 Tasks―Emotion induction

Sad – video on death of boys mentor (from the Champ)

Neutral – video on Great Barrier Reef

―Self focused essay Sad – how situation like one in video would affect them

Neutral – Daily activities

―Buying task Buy water bottle

Manipulation check and Debriefing

Misery is not Miserly - Results

Does self-focus moderate the misery not miserly effect ?

Does self focus mediate the misery not miserly effect?

Misery is not Miserly – Results Summary

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

Self focus moderates effect of sadness on spending.

High levels of self-focus mediate relationship between sadness and spending.

Sadness and self focus influence buying prices.

Misery is not Miserly - Alternative Explanations and Implications

Mood Repair theories although appearing to work don’t mention self focus.

Could be - sad and self-focused individuals reduced self value, therefore value other things more.

Valence based models of affect and decision making need updating.

Depression Increased self-focus and diminished sense of worth.

Credit Card effect - Rational

Evidence supporting conjecture that credit cards

increase spending

Several previous tests in this area

Credit card premium

The effect can be large – up to 200%

Mainly indirect testing

Credit Card effect – Hypothesis and Prediction

People are willing to spend more when using a credit

card over cash

Two separate studies using real money transactions

Use payment type and credit card logo exposure to

see what affects the most

Knowledge of the market price tested also

Credit Card effect – Methods – Study 1

Prizes – Willingness to pay for tickets to sporting events

Three prizes up for second-price sealed-bid auction for

MBA students

Student randomly allocated payment condition sheets.

Payments to be made by the next day

Credit Card effect – Results – Study 1

Credit Card effect – Methods – Study 2

Testing where market value is known – Gift

certificates for a local restaurant

Used Becker-DeGroot procedure to gain reservation

values

Students split into four groups

Credit Card effect – Results – Study 2

Credit card premiums of -13% and 36%

Students providing card details show similar figures to study 1

Students not providing details show little differentiation of payment method vs price

Credit Card effect - Conclusions

Study 1 shows the presence of the credit card

effect

Credit card effect greater when market value

unknown

No evidence that exposure to logos increased

willingness to pay

Willingness-to-pay varies depending on payment

method

Begley article – How they link

Sadness and Spending + Cash vs Credit

Begley – spending cash activates insular giving you

negative feelings

Study 1 – people spend more when sad

Study 2 – people spend more on credit cards

Spending cash can give negative emotions

Spending on credit cards numbs consumers from

the pain of parting with money

Begley article – How they link

Therefore sad people with credit cards may be a poor

combination

The pain of spending on cards hits home when

numbness wears off

Much worse than the initial hit if spending cash – with

interest

Insular prevents people from getting into trouble

Credit card = Anti-insular device?

Relevance – Further Research

Quite a high level of relevance to each other and seems to

fit with the real world and our own experiences

Further research:

―Give sad people a credit card and vice versa

―Observational study on the spending habits of people

with Bipolar disorder

―Does experience matter?

―Does Sex matter?

Take home message

Avoid shopping when sad

If you have to shop when sad, leave the credit

card at home

If possible, don’t use credit cards at all

References

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Cryder, C. E., J. S. Lerner, et al. (2008). "Misery is not miserly: Sad and self-focused individuals spend more." Psychological Science 19(6): 525-530.

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Prelec, D. and D. Simester (2001). "Always leave home without it: A further investigation of the credit-card effect on willingness to pay." Marketing Letters 12(1): 5-12.

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.

Vickrey, William. (1961). “Counterspeculation, Auctions, and Competitive Sealed Tenders,'' Journal of Finance 16, 8-37.

Watkins, E., & Teasdale, J.D. (2001). Rumination and overgeneral memory in depression: Effects of self-focus and analytic thinking. Journal of Abnormal Psychology, 110, 353–357.

Watkins, E., & Teasdale, J.D. (2004). Adaptive and maladaptive selffocus in depression. Journal of Affective Disorders, 82, 1–8.

References

Any Questions?