It seems credit card companies still have the last laugh.
[Featured image: Clay Banks on Unsplash]
Professor Drazen Prelec, at MIT Sloan School of Management was surprised by the results of an experiment on his unsuspecting students.
He organised a silent auction for tickets to sold-out Celtics basketball games. He told half the bidders they could only pay with cash and the other half they could only pay with a credit card.
In his words, “On average, we found that the credit card buyers bid more than twice as much as the cash buyers bid.”
In other words — the psychological cost of one dollar on a credit card is only 50 cents. Oops.
Breaking down the mental math.
When we buy something with cash, there is a give and take. We get a good and we part with cash. One pain and one gain.
In a credit card transaction, the effect is different. At the moment of purchase, we take the good and we take the credit card back.
Wow, the mental effect is subtle and deep — less pain means more impulse spending and less mental value to what we buy with credit card!
