tailieunhanh - Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay

Since the 1970's there has been growing evidence supporting the frequently heard conjecture that credit cards encourage spending. For example, it is known that people who own more credit cards make larger purchases per department store visit (Hirschman 1979), and that restaurant tips are larger when payment is by card (Feinberg 1986). There is also evidence that credit card users are more likely to underestimate or forget the amount spent on recent purchases (Soman 1999). Perhaps the most compelling evidence, however, is that offered in an experimental analysis of the effect by Feinberg (1986). In that investigation participants were asked how much they would be willing to. | Marketing Letters 12 1 5-12 2001. 2001 Kluwer Academic Publishers. Manufactured in The Netherlands Always Leave Home Without It A Further Investigation of the Credit-Card Effect on Willingness to Pay DRAZEN PRELEC1 AND DUNCAN SIMESTER Sloan School of Management MIT 38 Memorial Drive Cambridge MA 02142 Tel. 617-258-0679 fax. 617-258-7597 e-mail simester@ Received April 25 2000 Revised June 8 2000 Abstract In studies involving genuine transactions of potentially high value we show that willingness-to-pay can be increased when customers are instructed to use a credit card rather than cash. The effect may be large up to 100 and it appears unlikely that it arises due solely to liquidity constraints. In addition to demonstrating the effect we provide a methodology for detecting it and our findings suggest a source of variance to test alternative explanations. Key words credit cards overspending mental accounting 1. Introduction Since the 1970 s there has been growing evidence supporting the frequently heard conjecture that credit cards encourage spending. For example it is known that people who own more credit cards make larger purchases per department store visit Hirschman 1979 and that restaurant tips are larger when payment is by card Feinberg 1986 . There is also evidence that credit card users are more likely to underestimate or forget the amount spent on recent purchases Soman 1999 . Perhaps the most compelling evidence however is that offered in an experimental analysis of the effect by Feinberg 1986 . In that investigation participants were asked how much they would be willing to spend for various consumer products in a setting where credit card paraphernalia ostensibly unrelated to the task were displayed on the experimental desk. He found that by so decorating the experimental setting he could boost hypothetical willingness-to-pay estimates by 50200 relative to the estimates of a control group. We refer to this increase as the credit card premium. .