Cash or Credit?

The difference between cash transactions and non-cash transactions is palpable. Paying with physical banknotes feels like a legitimate trade — the cause-and-effect plays out before you. And this is how we are conditioned to experience monetary value: through this kind of transfer.

Credit cards and other non-cash methods of payment lead to a different kind of experience, one that feels somehow less real. This is called the Credit Card Effect, and it has been shown to greatly increase willingness to spend money.

Cash and credit may both be liquid, but they differ in the degree of slipperiness.

This is where behavioral economics comes in, because none of this is as simple as spending less with cash and more with credit. There’s a complex web of things to take into account when looking at behavior with regard to payment. Dan Ariely (in his Predictably Irrational) showed that people tend to be more ethical when dealing with physical money than they are with other non-monetary items of equivalent value. For example, people are more likely to take six Cokes that aren’t theirs than six dollars.

As Wolman points out, there’s no reason we can’t acculturate this reaction to different forms of payment.

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Wolman, David. The End of Money: Counterfeiters, Preachers, Techies, Dreamers – and the Coming Cashless Society. (Boston: Da Capo, 2012).

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Comments
One Response to “Cash or Credit?”
  1. dem says:

    I think Wolman must be right — I can only assume people once had this very same discussion over how much more “real” it was to pay with gold or silver, rather than this new-fangled “paper currency.” We adapt.

    The Ariely book is truly a fascinating read, highly recommend it!

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