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The Denomination Effect
Abstract and Figures
Labeled the "denomination effect," study 1 shows in three field studies that the likelihood of spending is lower when an equivalent sum of money is represented by a single large denomination (e.g., one 1 bills). In two of the three field studies, individuals spent more once the decision to spend had been made. Study 2 then shows that consumers deliberately choose to receive money in a large denomination relative to small denominations when there is a need to exert self-control in spending. Study 3 further shows that the denomination effect is contingent on individual differences in people's desire to reduce the pain of paying associated with spending. The results suggest that the denomination effect occurs because large denominations are psychologically less fungible than smaller ones, allowing them to be used as a strategic device to control and regulate spending. (c) 2009 by JOURNAL OF CONSUMER RESEARCH, Inc..
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... Much research has been devoted to how individuals perceive the monetary value of banknotes (Di Muro & Noseworthy, 2013;Giuliani et al., 2018;Macizo & Herrera, 2013;Macizo & Morales, 2015;Manippa et al., 2021;Mishra et al., 2006;Raghubir & Srivastava, 2009;Ruiz et al., 2017). Beyond their monetary value, the format in which banknotes are presented influences their perceived economic value. ...
... €20, 20€, €10) than in a single bill of larger value (e.g. €50, Mishra et al., 2006;Raghubir & Srivastava, 2009). Finally, the visual processing of money appears to have specific characteristics, as €100 bills were recognised faster than €5 bills when displayed in the right visual field, a difference that was not found in the left visual field (Giuliani et al., 2018). ...
... Furthermore, the 2-euro coin might not only have posed greater familiarity effects because it's more frequently used but also because according to the denomination effect found with banknotes (e.g. Raghubir & Srivastava, 2009), participants might perceive it as more valuable in comparison to the same monetary amount presented with smaller-value coins. Finally, the results do not support our total value size effect hypothesis. ...
... This bias suggests that individual's spending increased significantly as a result of redenomination adaptation and as an importing economy the demand for foreign exchange will be affected thereby pushing exchange rate up. According to the bias for the whole (Mishra et al., 2006) and denomination effect (Raghubir & Srivastava, 2009), holding a higher denomination is a check on the individual against unplanned spending. This is because individuals have special interest in the whole (big denomination) than part of the whole (Mishra et al., 2006) and at the same time use the large denomination as a self-control and self-regulation (Raghubir & Srivastava, 2009) by individuals. ...
... According to the bias for the whole (Mishra et al., 2006) and denomination effect (Raghubir & Srivastava, 2009), holding a higher denomination is a check on the individual against unplanned spending. This is because individuals have special interest in the whole (big denomination) than part of the whole (Mishra et al., 2006) and at the same time use the large denomination as a self-control and self-regulation (Raghubir & Srivastava, 2009) by individuals. This bias effect simply suggests that when currency denomination is in parts than whole or small denominations, individuals' willingness to spend and spending increases because they lose their self-control. ...
... Since redenomination policy changes large nominal denomination currencies to small nominal denomination (rebasing), even though real value remained same, individuals' cognitive bias shift towards the nominal values through money illusion thereby treating the new smaller currencies like play money. GDP bias increases and exchange rate rises as an evidence in this study and the result is consistent with currency denominational biases advocated by Mishra et al. (2006), Raghubir and Srivastava (2009) and even physical appearance effect (DiMuro & Noseworthy, 2013). ...
Redenomination of currency has become a common phenomenon in recent past among emerging and transitional economies. In 2007, Ghana became one of the economies to redenominate in recent past. This currency policy adaptation has the potential of triggering certain individual behavioral biases on the forex market. This study provides evidence that currency biases that accompanied Ghana’s currency reform adaptation in 2007 contribute to its forex market price (exchange rate) fluctuations. Using data from 1980 to 2018 with some estimated biases and some selected macroeconomic fundamentals as covariates in an ANCOVA (Analysis of Covariance) model, the study revealed that estimated biases which were induced as a result of currency reform adaptation impact positively and significantly on Ghana’s forex market prices. It is therefore recommended that policy makers, political leaders and stakeholders begin to look at human factors that may exist in the forex market and incorporate this information into future plans in addressing issues relating to forex market fluctuations.
... One apparently plausible explanation could lie in the distinct appeal of gaining US $ 50,-. Unique in being the only CE with its own banknote representation among the CEs that were tested (the 30-70 range), the prospect of gaining $ 50,might hold a specific allure to participants due to the denomination effect (Raghubir and Srivastava 2009). However, this interpretation is post hoc and does not detract from the overall significance of the pattern as hypothesized in H1 in our final sample, though it may have contributed to the lack of significance of this test when we conducted it on the first 500 data points collected (footnote 1). ...
Consumers generally prefer precise probabilities or outcomes over imprecise ranges with the same expected value, a bias known as ‘ambiguity aversion.’ We argue that two elementary principles of numerical cognition explain great heterogeneity in this bias, affecting consumer choices in many domains where options are characterized by varying levels of uncertainty (e.g., lotteries, discounts, investment products, vaccines, etc.). The first principle, the ‘compression effect,’ stipulates that consumers’ mental number lines are increasingly compressed at greater number magnitudes. This alone suffices to predict ambiguity aversion as it causes a midpoint (e.g., 60) compared to its lower bound (e.g., $20). Furthermore, as the compression effect distorts the mental number line especially at lower numbers, it follows that ambiguity aversion should decrease around greater numbers. The second principle, the ‘left-digit effect’ causes a range’s relative attractiveness to decrease (increase) disproportionately with every left-digit transition in its lower (upper) bound, thus increasing (decreasing) ambiguity aversion. Due to the overall compression effect, the impact of the left-digit effect increases at greater numbers. We present 34 experiments (N = 10634), to support the theory’s predictions and wide applicability.
... The issue of impulsive purchase has been extensively explored across the world (Badgaiyan et al., 2016;Chauhan et al., 2021;Mamuaya et al., 2018). Several previous studies have found that when paying with a credit card, people make more purchases than when paying with cash (Cheema & Soman, 2006;Raghubir & Srivastava, 2009) and that, when compared to other payment methods, paying with a credit card can increase impulsive buying (Soman, 2001). Several studies (Chauhan et al., 2021;Dawson & Kim, 2009;Fogel et al., 2012;Park & Burns, 2005) have indicated that the use of a credit card is the most important factor determining impulsive purchases. ...
Payment systems have evolved quite quickly throughout the history of payment systems and the advent of digital technologies. In the digital age, economic expansion in Indonesia has resulted in an increase in the banking population and the growth of cashless payment channels. Surprisingly, despite the introduction of new non-cash payment channels, many consumers continue to use credit cards, particularly in major cities. Much previous research has indicated that the role of credit cards is directly tied to materialism and purchasing behavior. This is especially pertinent to impulsive and compulsive purchase behavior; which credit cards are extremely likely to facilitate. The purpose of this study was to investigate how materialism influences credit card use as well as impulsive and compulsive buying. This study also investigates whether materialism has mediation effects on compulsive buying. Adult credit card users in Jakarta were polled for the data. This quantitative approach, with 197 participants employs SEM-PLS and SMART PLS 3.0. Materialism influences credit card use and impulsive purchasing. In this instance, impulsive purchases become compulsive. Meanwhile, compulsive buying is caused by internal forces, and credit card use has no impact on it.
... For example, an individual might make a budget ahead of any spending situation, setting limits or goals for the spending amount on a given purchase or over a time period (e.g., Tam & Dholakia, 2014). People might limit access to certain methods of payment (Prelec & Simester, 2001;Raghubir & Srivastava, 2009), for example by leaving credit cards at home and thus limiting their own access to money once they do encounter a tempting purchase. Strategies that might be used more reactively include changes in the way a person thinks or behaves once they encounter a tempting situation (e.g., Bartels & Urminsky, 2015;Haws, 2016;Hetts et al., 2000;Nenkov et al., 2014;Rudzinska-Wojciechowska, 2017). ...
... For example, consumers have been shown to pay more when they pay using credit cards or gift cards and gift certificates versus cash ("monopoly money effect," cf. Raghubir & Srivastava, 2009) and have been shown to be more likely to spend when they are carrying smaller denominations of money ("denomination effect," ...
This conceptual paper presents a framework that integrates eleven forms of voluntary payments as seemingly disparate as bribes and bequests, and gifts and gratuities to show that “voluntary” payments vary in the shades of grey not only in terms of how much like bribes they are, but also in terms of how voluntary they actually are. We provocatively suggest that these payment types might be susceptible to becoming entrenched through self-reinforcing norms because the voluntary payments are not necessarily voluntary and to an extent akin to bribes.
Specifically, it provides an over-arching framework to showcase the similarities and differences between bribes, lobbying efforts, suggested fees, pay-what-you-want, tips, bequests, legacies, charity, crowd-sourcing, dowry and gifts, identifying gaps in domains that are underresearched. Starting with the question as to whether a service has been, is being or will be performed for the voluntary payment, and whether payments are made to an individual or a cause, the framework highlights: 1) the differences in the purpose underlying these payments 2) the different modes of payment used 3) the economic and social norms governing the payments, and 4) external and internal emotions associated with these payment types. The
integrative framework allows for an amalgam of disparate literatures ranging from morality and behavioral pricing to charity and gift-giving. The process model suggests a multitude of areas for future research in the domain of consumers’ voluntary payment decisions.
Purpose
The purpose of this paper is to investigate the effect of reward redemption programs on donation amount, donation percentage and donation intention in the context of a bank credit card.
Design/methodology/approach
A 2 × 2 × 3 experiment is implemented with 1,070 consumers accessing a national US-based sample with a small compensation. The authors use general linear model to test the proposed hypotheses.
Findings
The findings show the main effects of reward types, limited-time message and value of reward redemptions on the percentage of donations and overall donation intention to charity. The type of reward (cash/points) is found to interact with the limited-time message and with the value of reward redemptions.
Originality/value
No prior studies have addressed the relationship between credit card redemption rewards and scarcity messages in the donation context. The study contributes to the understanding of the effectiveness of credit card redemption rewards with scarcity message in improving a consumer’s donation intention.
Many numerical expressions contain a separator such as a comma (e.g., 1,234) or a decimal point (e.g., 12.34) that divides the number into left and right parts. This research examines how individuals compare such numbers as a function of psychological distance. Integrating insights from research on diagnosticity, numerical cognition, and mental construal, we hypothesize that as psychological distance increases, the perceived diagnosticity of digits to the right of a separator (hereinafter right digits) decreases faster than that of the digits to the left of a separator (hereinafter left digits), which leads individuals to assign less weight to the right digits in comparative judgment. Four studies offer triangulating support for this theorizing and the underlying mechanism. In addition, we show that this effect is attenuated or suppressed when individuals perceive that numerical ratings are more stable over time (thereby increasing the perceived diagnosticity of right digits, Study3), and when the distinction between left and right digits are made less obvious (e.g., when removing the digit separator, Study 4). This research offers additional nuance to our understanding of numerical cognition and how psychological distance influences the processing of different types of information.
An analysis of the behavioral aspects of decision-making in the financial market was carried out and the main theoretical approaches to explaining behavioral differences in the decisions of financial agents were considered. The role of cognitive biases, heuristics, behavioral illusions, and psychological factors in the formation of decisions of investors and financial market participants is summarized. Behavioral effects in making financial decisions are systematized according to their common characteristics. The importance of psychological factors in the formation of trends and price dynamics on the market has been proven. Significant aspects that determine the behavioral approach to financial transactions and affect the effectiveness of investment and portfolio management are revealed. The dependence between the features of a person’s mental activity and the ability to make logical rational decisions has been revealed. The role of cognitive biases in protecting an individual from excessive amounts of information and its simplification is substantiated.
This article develops a conceptual framework to examine how consumers incorporate mem- ory-based and context-based cues in estimating past and future credit card expenses. Focusing on memory-based information, in this framework we suggest that past credit card expenses may be recalled as holistic totals or episodic individual expenses depending on the accessibility of each form of expense. We tested the conceptual framework with 3 studies. Study 1 showed that the recency of past expenses and frequency of credit card usage moderated the extent to which past expenses were used in estimating future expenses. Study 1 also showed that self-awareness of estimation bias affected consumers' estimates of future expenses. Study 2 showed that a de- composition strategy (unbundling a total into subcategories), which serves to make episodic in- dividual expenses more accessible, was effective in reducing sampling-based bias. Study 3 pro- vided a validity check and showed that decomposition cues reduced estimation errors and affected estimates of future expense. In this article, we demonstrate the manner in which mem- ory-based information is used to make estimates, and we also demonstrate the effectiveness of decomposition as a debiasing technique for past and future estimates.
Consumers often behave differently than they would ideally like to behave. We propose that an anticipatory pain of paying drives “tightwads” to spend less than they would ideally like to spend. “Spendthrifts,” by contrast, experience too little pain of paying and typically spend more than they would ideally like to spend. This article introduces and validates the “spendthrift-tightwad” scale, a measure of individual differences in the pain of paying. Spending differences between tightwads and spendthrifts are greatest in situations that amplify the pain of paying and smallest in situations that diminish the pain of paying.
Multidisciplinary evidence suggests that people often make evaluative judgments by monitoring their feelings toward the target. This article examines, in the context of moderately complex and consciously accessible stimuli, the judgmental properties of consciously monitored feelings. Results from four studies show that, compared to cold, reason-based assessments of the target, the conscious monitoring of feelings provides judgmental responses that are (a) potentially faster, (b) more stable and consistent across individuals, and importantly (c) more predictive of the number and valence of people's thoughts. These findings help explain why the monitoring of feelings is an often diagnostic pathway to evaluation in judgment and decision making.
Preference can be inferred from direct choice between options or from a matching procedure in which the decision maker adjusts one option to match another. Studies of preferences between two-dimensional options (e.g., public policies, job applicants, benefit plans) show that the more prominent dimension looms larger in choice than in matching. Thus, choice is more lexicographic than matching. This finding is viewed as an instance of a general principle of compatibility: The weighting of inputs is enhanced by their compatibility with the output. To account for such effects, we develop a hierarchy of models in which the trade-off between attributes is contingent on the nature of the response. The simplest theory of this type, called the contingent weighting model, is applied to the analysis of various compatibility effects, including the choice-matching discrepancy and the preference-reversal phenomenon. These results raise both conceptual and practical questions concerning the nature, the meaning and the assessment of preference. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
ABSTRACT Shopping momentum ,occurs when ,an initial purchase ,provides a psychological ,impulse whose momentum drives the purchase of a second, unrelated product. The most promising theoretical mechanism ,for shopping ,momentum ,comes ,from Gollwitzer’s (1990) theory of implementation and deliberation mindsets. Under this theory, shopping momentum occurs because the initial purchase moves one from a deliberative to an implemental mindset, thus driving subsequent purchases. After demonstrating the main shopping momentum effect, we support the mindset theory by (1) showing ,that the result is not ,compatible ,with affect connected with the first purchase increasing the likelihood of purchasing the second, (2) demonstrating how an initial purchase induces implemental,orientation and (3) by illustrating
Consumers' attempts to control their unwanted consumption impulses influence many everyday purchases with broad implications for marketers' pricing policies. Addressing theoreticians and practitioners alike, this paper uses multiple empirical methods to show that consumers voluntarily and strategically ration their purchase quantities of goods that are likely to be consumed on impulse and that therefore may pose self-control problems. For example, many regular smokers buy their cigarettes by the pack, although they could easily afford to buy 10-pack cartons. These smokers knowingly forgo sizable per-unit savings from quantity discounts, which they could realize if they bought cartons; by rationing their purchase quantities, they also self-impose additional transactions costs on marginal consumption, which makes excessive smoking overly difficult and costly.
Such strategic self-imposition of constraints is intuitively appealing yet theoretically problematic. The marketing literature lacks operationalizations and empirical tests of such consumption self-control strategies and of their managerial implications. This paper provides experimental evidence of the operation of consumer self-control and empirically illustrates its direct implications for the pricing of consumer goods. Moreover, the paper develops a conceptual framework for the design of empirical tests of such self-imposed constraints on consumption in consumer goods markets. Within matched pairs of products, we distinguish relative “virtue” and “vice” goods whose preference ordering changes with whether consumers evaluate immediate or delayed consumption consequences. For example, ignoring long-term health effects, many smokers prefer regular (relative vice) to light (relative virtue) cigarettes, because they prefer the taste of the former. However, ignoring these short-term taste differences, the same smokers prefer light to regular cigarettes when they consider the long-term health effects of smoking. These preference orders can lead to dynamically inconsistent consumption choices by consumers whose tradeoffs between the immediate and delayed consequences of consumption depend on the time lag between purchase and consumption. This creates a potential self-control problem, because these consumers will be tempted to overconsume the vices they have in stock at home. Purchase quantity rationing helps them solve the self-control problem by limiting their stock and hence their consumption opportunities. Such rationing implies that, per purchase occasion, vice consumers will be less likely than virtue consumers to buy larger quantities in response to unit price reductions such as quantity discounts.
We first test this prediction in two laboratory experiments. We then examine the external validity of the results at the retail level with a field survey of quantity discounts and with a scanner data analysis of chain-wide store-level demand across a variety of different pairs of matched vice (regular) and virtue (reduced fat, calorie, or caffeine, etc.) product categories. The analyses of these experimental, field, and scanner data provide strong convergent evidence of a characteristic crossover in demand schedules for relative vices and virtues for categories as diverse as, among others, potato chips, chocolate chip cookies, cream cheese, beer, soft drinks, ice cream and frozen yogurt, chewing gum, coffee, and beef and turkey bologna. Vice consumers' demand increases less in response to price reductions than virtue consumers' demand, although their preferences are not generally weaker for vices than for virtues. Constraints on vice purchases are self-imposed and strategic rather than driven by simple preferences. We suggest that rationing their vice inventories at the point of purchase allows consumers to limit subsequent consumption. As a result of purchase quantity rationing, however, vice buyers forgo savings from price reductions through quantity discounts, effectively paying price premiums for the opportunity to engage in self-control. Thus, purchase quantity rationing vice consumers are relatively price insensitive.
From a managerial and public policy perspective, our findings should offer marketing practitioners in many consumer goods industries new opportunities to increase profits through segmentation and price discrimination based on consumer self-control. They can charge premium prices for small sizes of vices, relative to the corresponding quantity discounts for virtues. Virtue consumers, on the other hand, will buy larger amounts even when quantity discounts are relatively shallow. A key conceptual contribution of this paper lies in showing how marketing researchers can investigate a whole class of strategic self-constraining consumer behaviors empirically. Moreover, this research is the first to extend previous, theoretical work on impulse control by empirically demonstrating its broader implications for marketing decision making.
A considerable body of research supports the idea that individuals who set be- havioral goals perform better than others who set no goals. In this article, we propose that in addition to the positive effects, goals may also have a counter- productive effect. Specifically, we propose that violating one's goal may cause a deterioration of subsequent performance as compared to individuals who have no goals. When the violation of one's goal is coded as a failure, it can result in demotivation, negative emotion, and consequently a poorer performance. We re- port two experiments that demonstrate the counterproductive effects of goals and discuss potential moderators of this effect along with several possible process explanations.
Self-control is a promising concept for consumer research, and self-control failure may be an important cause of impulsive purchasing. Three causes of self-control failure are described. First, conflicting goals and standards undermine control, such as when the goal of feeling better immediately conflicts with the goal of saving money. Second, failure to keep track of (monitor) one's own behavior renders control difficult. Third, self-control depends on a resource that operates like strength or energy, and depletion of this resource makes self-control less effective. Trait differences in self-control predict many behaviors. Implications for theory and research in consumer behavior are discussed.
In "Losing Control," the authors provide a single reference source with comprehensive information on general patterns of self-regulation failure across contexts, research findings on specific self-control disorders, and commentary on the clinical and social aspects of self-regulation failure. Self-control is discussed in relation to what the "self" is, and the cognitive, motivational, and emotional factors that impinge on one's ability to control one's "self." (PsycINFO Database Record (c) 2012 APA, all rights reserved)
In the standard economic account of consumer behavior the cost of a purchase takes the form of a reduction in future utility when expenditures that otherwise could have been made are forgone. The reality of consumer hedonics is different. When people make purchases, they often experience an immediate pain of paying, which can undermine the pleasure derived from consumption. The ticking of the taxi meter, for example, reduces one's pleasure from the ride. We propose a “double-entry” mental accounting theory that describes the nature of these reciprocal interactions between the pleasure of consumption and the pain of paying and draws out their implications for consumer behavior and hedonics. A central assumption of the model, which we call prospective accounting, is that consumption that has already been paid for can be enjoyed as if it were free and that the pain associated with payments made prior to consumption (but not after) is buffered by thoughts of the benefits that the payments will finance. Another important concept is coupling, which refers to the degree to which consumption calls to mind thoughts of payment, and vice versa. Some financing methods, such as credit cards, tend to weaken coupling, whereas others, such as cash payment, produce tight coupling.
Our model makes a variety of predictions that are at variance with economic formulations. Contrary to the standard prediction that people will finance purchases to minimize the present value of payments, our model predicts strong debt aversion—that they should prefer to prepay for consumption or to get paid for work after it is performed. Such pay-before sequences confer hedonic benefits because consumption can be enjoyed without thinking about the need to pay for it in the future. Likewise, when paying beforehand, the pain of paying is mitigated by thoughts of future consumption benefits. Contrary to the economic prediction that consumers should prefer to pay, at the margin, for what they consume, our model predicts that consumers will find it less painful to pay for, and hence will prefer, flat-rate pricing schemes such as unlimited Internet access at a fixed monthly price, even if it involves paying more for the same usage. Other predictions concern spending patterns with cash, charge, or credit cards, and preferences for the earmarking of purchases.
We test these predictions in a series of surveys and in a conjoint-like analysis that pitted our double-entry mental accounting model against a standard discounting formulation and another benchmark that did not incorporate hedonic interactions between consumption and payments. Our model provides a better fit of the data for 60% of the subjects; the discounting formulation provides a better fit for only 29% of the subjects (even when allowing for positive and negative discount rates).
The pain of paying, we argue, plays an important role in consumer self-regulation, but is hedonically costly. From a hedonic perspective the ideal situation is one in which payments are tightly coupled to consumption (so that paying evokes thoughts about the benefits being financed) but consumption is decoupled from payments (so that consumption does not evoke thoughts about payment). From an efficiency perspective, however, it is important for consumers to be aware of what they are paying for consumption. This creates a tension between hedonic efficiency and what we call decision efficiency. Various institutional arrangements, such as financing of public parks through taxes or usage fees, play into this tradeoff. A producer developing a pricing structure for their product or service should be aware of these two conflicting objectives, and should try to devise a structure that reconciles them.