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

1. 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).

2. 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

3. 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)

4. 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.

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

6. 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.

7. 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

8. Misery is not Miserly - Results • Does self-focus moderate the misery not miserly effect ? • Does self focus mediate the misery not miserly effect?

9. 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.

10. 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.

11. 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

12. 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

13. 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

14. Credit Card effect – Results – Study 1

15. 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

16. 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

17. 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

18. 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

19. 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?

20. 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?

21. 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

22. References Ausubel, Lawrence M. (1991). “The Failure of Competition in the Credit Card Market,'' American Economic Review 81, 50-81. Becker, Gary M., Morris H. DeGroot, and Marschak, Jacob. (1964). “Measuring Utility by a Single-response Sequential Method,'' Behavioral Science 9, 226-232. Blumberg, S.R., & Hokanson, J.E. (1983). The effects of another person’s response style on interpersonal behavior in depression. Journal of Abnormal Psychology, 192, 196–209. Clark, M.S., & Isen, A.M. (1982). Towards understanding the relationship between feeling states and social behavior. In A.H. Hastorf & A.M. Isen (Eds.), Cognitive social psychology (pp. 73–108). Amsterdam: Elsevier/North-Holland. 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. Feinberg, Richard A. (1986). “Credit Cards as Spending Facilitating Stimuli: A Conditioning Interpretation,'‘ Journal of Consumer Research 12, 384-356. Gotlib, I.H., & Hammen, C.L. (1992). Psychological aspects of depression: Toward a cognitive-interpersonal integration. New York: Wiley. Hirschman, Elizabeth C. (1979). “Differences in Consumer Purchase Behavior by Credit Card Payment System,'‘ Journal of Consumer Research 6, 58-66.

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