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

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.

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Prelec, D., Simester, D. Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay. Marketing Letters 12, 5–12 (2001). https://doi.org/10.1023/A:1008196717017

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  • credit cards
  • overspending
  • mental accounting