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The Denomination Effect
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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 $20 bill) relative to many smaller denominations (e.g., 20 $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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... Indeed, $2 bills are quite rare, as there are around ten $1 bills for every $2 in circulation. Raghubir and Srivastava (2009) provide an alternative explanation for 'a bias for the whole', proposing that it occurs because individuals perceive relatively large denominations as less fungible. Leveraging their lower perceived fungibility, people strategically choose larger denominations over smaller ones as a way to exert self-control and curb spending. ...
... Leveraging their lower perceived fungibility, people strategically choose larger denominations over smaller ones as a way to exert self-control and curb spending. Another explanation is that large denominations of money may be placed into a mental account of 'real money', while an equivalent amount in smaller denominations may be placed into a 'petty cash' or 'loose change' account (Raghubir & Srivastava, 2009). ...
... On the other hand, there is recent research on how people perceive and produce the monetary value of banknotes (Di Muro & Noseworthy, 2013;Giuliani et al., 2018;Macizo & Herrera, 2013;Macizo & Morales, 2015;Manippa et al., 2019;Mishra et al., 2006;Raghubir & Srivastava, 2009;Ruiz et al., 2017). Banknotes represent amounts of money that people can identify with accuracy based on the monetary category and the number depicted on each bill. ...
... For example, people judge with less economic value the bills that seem used and shabby compared to bills that, despite representing the same amount of money, appear crisp and new (Di Muro & Noseworthy, 2013). In addition, people are more likely to spend money when the same economic amount is presented in smaller bills than when it is shown in a single bill of greater size (Mishra et al., 2006;Raghubir & Srivastava, 2009). Moreover, people tend to attribute greater economic value to bills that are more familiar to them (e.g., regular $1 bill) compared to less familiar bills (e.g., rare $2 bill) (Alter & Oppenheimer, 2008). ...
In the current study, we evaluate the relevance of three physical features when people retrieve the monetary value of banknotes. To this end, three monetary comparison tasks were designed in which in each trial a pair of banknotes were presented and participants selected the one with higher monetary value. In each task, a different banknote feature (size, colour and design) was examined and a congruent and an incongruent condition (the value of the physical feature corresponded or not to its actual value, respectively) were compared to a neutral condition (no information about the physical feature was provided). We found a pattern of facilitation and interference effects which suggests that size is the most relevant physical feature for accessing the monetary value of banknotes followed by colour. However, the availability of a variety of designs across banknotes seemed not to facilitate the performance of the task, but rather the opposite, hindering the monetary comparison task.
... In addition, the relationship of payment and the physical format of payment that affects the behavior of the buyer has also been tested and validated by other payment methods, established as gift certificates, prepaid cards and checks [9,10,12,13]. ...
Nowadays market develops new means of payment to force consumers increase their spending readiness. New means of paying (different applications and cards) decrease ‘‘pain of paying’’ and increase readiness of spending. But different means of paying are differently perceived and accepted by the consumers. This research is aimed to reveal some features of spending and financial behavior of consumers depending their preference of cash, cards and applications. Our earlier research proves that using of cash depends on the age. The older persons prefer cash. In certain payments the youngest group prefers doing payments by applications. Unemployed people are more tended to choose cash spending. Those, who generally preferred paying in cash or card, noted that utility bills are paid by app. So, if well-working and trusted system exists people choose application. Reason can be either consumers tend to focus less on the negative feeling associated with the amount paid or with absence of queues and general easiness. Now we tried to discover online consuming features and some psychological characteristics depending of preferences of different means of payment.
... Previous work has focused on quantitative splits of cash, but cash can also vary in quality such that some forms of it are more desirable than others. One such qualitative difference is that larger denominations (e.g., 2e coins) are preferred to smaller denominations (e.g., 200 × 1¢ coins = 2e; Mishra et al., 2006;Raghubir & Srivastava, 2009). Therefore, we manipulated the quality of a monetary offer by varying the types of denominations that participants received while holding constant the financial value of the offer. ...
According to decades of research, whether negotiations succeed depends on how much of the stake each person will get. Yet, real-world stakes often consist of resources that vary on quality, not just quantity. While it may appear obvious that people should reject qualitatively inferior offers, just as they reject quantitatively unequal offers, it is less clear why. Across three incentive-compatible studies ( N = 1,303) using the ultimatum game, we evaluate three possible reasons for why people reject qualitatively unequal negotiation offers (that are 50% of the stake): fairness, mere inequality, or badness. Data across the three studies are consistent with the fairness account. Casting doubt on the possibility that people reject qualitatively unequal offers merely because they are ‘bad’, Studies 1 and 2 found that participants were more likely to reject the same coins when these were inferior (e.g., 200 × 5¢ coins) to the negotiation partner’s coins (e.g., 5 × $2 coins) than when both parties received the same undesirable coins (e.g., both received 200 × 5¢ coins). Supporting a fairness explanation, rejection rates of the qualitatively inferior offer were higher when the proposal came from a human (vs. a computer), suggesting that rejection stemmed in part from a desire to punish the negotiation partner for unfair treatment (Study 3). Nevertheless, some participants still rejected the unequal offer from a computer, suggesting that mere inequality matters as well. In sum, the findings highlight that quality, not just quantity, is important for attaining fair negotiation outcomes.
We hypothesize that the physical characteristics of cash lead to differences in “pain of holding” which influences spending. In one field study (rural India) and two controlled experiments ( N =1,710), we tested that hypothesis by endowing people with coins or equivalently‐valued banknotes and measuring their pain of holding and spending. Holding denomination constant (e.g., $1 coins vs. $1 banknotes), participants reported a greater pain of holding for coins (vs. banknotes) which in turn increased spending. These findings were consistent across three incentive‐compatible experiments using a range of contexts (spending/donation), populations (Americans/Indians), and currencies (USD/INR). There was no evidence that coins were spent more than banknotes because of lower perceived purchasing power. Our findings suggest that the pain of holding contributes to under‐saving, which may be especially problematic among vulnerable populations who rely on cash. Conceptually, we shed new insight on the denomination effect (greater spending of smaller than larger denominations) and the pain of paying (the aversive experience of spending money). Practically, we provide recommendations for practitioners who wish to encourage donations, spending, or saving.
American consumers tip $36bn annually, predominantly using small sums of cash. Yet, little is known about how the denominations of cash affect tipping behavior. In contrast to existing findings on the spending of different denominations (i.e., the denomination effect), we posit that consumers are less likely to tip smaller (vs. larger) denominations (e.g., $1 in 4x25¢ coins vs. a $1 banknote) to the same total value. We term this the “denomination‐tipping” effect and predict that it occurs because it is more embarrassing to tip with smaller denominations than larger denominations. Consistent with this prediction, we find across one field study and four online studies ( N =1,402) that consumers are less likely to tip smaller (vs. larger) denominations, and that this “denomination‐tipping” effect is mediated by feelings of embarrassment regarding tipping smaller denominations. Our findings add to the literature on how cash denomination affects consumers’ usage of money in the context of tipping, and we provide practical guidance on how service providers can minimize the adverse impact of smaller denominations on tips to their service staff.
This paper aims to systematically analyze and synthesize the existing research published on mental accounting and purchase decision processes by conducting a systematic literature review. Specifically, the paper aims to answer the question: “What are the effects of mental accounting on purchase decision processes?” Therefore, it identified 110 papers which contribute to achieving the research objective and which were selected using the same data collection, data analysis, and quality standards. After reviewing the identified publications, the paper finds that the existing literature can be structured along four main themes impacting purchase decision‐making processes: (1) source of funds, (2) intended use of funds, (3) pricing, and (4) payments. The paper shows that for each of the four themes there are multiple mental accounting effects with an impact on for example willingness to pay, the experienced pain of paying or the ultimate purchase decision. Further, the paper identifies potential directions for future research in mental accounting, including the influence of product categories on mental accounting, flexibility in budget setting and its impact on mental accounting behavior, long‐term effects of mental budgeting on financial wealth, integration–segregation behavior in the context of pricing, the role of consumer characteristics on mental accounting behavior, and the impact of increased financial transparency through technology on mental accounting.
In the last two years, consumers have experienced massive changes in consumption – whether due to shifts in habits; the changing information landscape; challenges to their identity, or new economic experiences of scarcity or abundance. What can we expect from these experiences? How are the world's leading thinkers applying both foundational knowledge and novel insights as we seek to understand consumer psychology in a constantly changing landscape? And how can informed readers both contribute to and evaluate our knowledge? This handbook offers a critical overview of both fundamental topics in consumer psychology and those that are of prominence in the contemporary marketplace, beginning with an examination of individual psychology and broadening to topics related to wider cultural and marketplace systems. The Cambridge Handbook of Consumer Psychology, 2nd edition, will act as a valuable guide for teachers and graduate and undergraduate students in psychology, marketing, management, economics, sociology, and anthropology.
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
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.
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)