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Want to spend less? Ditch your credit card and don’t shop when sad

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

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Want to spend less? Ditch your credit card and don’t shop when sad

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  1. Want to spend less? Ditch your credit card and don’t shop when sad Ellie Isaacs, Stephanie Dampney, Jessica Brunt, Emily Giblin

  2. 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)

  3. 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.

  4. 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.

  5. 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?

  6. Prelec & Simester (2001) - Study 1 Method • Auctioned for the following prizes (prices unknown): • One pair of 3rd row balcony tickets for Celtics-Miami game, Sunday April 19, 1PM, at the Boston Garden. • One pair of bleacher tickets for Red Sox-Toronto game, Sunday April 19, 1PM, at Fenway Park. • Consolation prize of one Celtics and one Red Sox banner. • Reservation values generated from second price sealed bid auction.

  7. Prelec & Simester (2001) - Study 1 Results

  8. 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.

  9. Prelec & Simester (2001) - Study 2 Results

  10. Prelec & Simester (2001) - Discussion • Cash condition $25 • Credit Card Condition $41 • Those exposed to credit card logos paid significantly more.

  11. 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-DeGrootmodel 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

  12. 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 decisions • Valence 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.

  13. 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?

  14. Cryder, Lerner, Gross & Dahl (2008)- Method • Emotion Induction • Sad- condition • Neutral- condition • Self- Focused Essay • Buying Task • Manipulation Checking & Debriefing • Demand Awareness Questions

  15. 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.

  16. Cryder, Lerner, Gross & Dahl (2008)- Results Buying price affected by high level of self focus in the sad condition.

  17. Cryder, Lerner, Gross & Dahl (2008) - Results Significant interaction between self- reported sadness and self- focus

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

  19. 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.

  20. 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).

  21. Comparison of Paper 1 & 2 Differences • Payment in paper 2 • Looking at different aspects of spending- emotional vs physical Similarities • Both used participants aged 30 and under • Cant generalise • Both looking at ways of spending less • Both have sense of identification

  22. 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

  23. 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

  24. 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.

  25. 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. • http://bps-research-digest.blogspot.co.uk/search?q=begley

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