Friday, October 28, 2011

Spending money with credit cards and cash

In my last blog entry, I wrote about research suggesting that people may spend small bills more freely than large bills. A number of people asked me what happens with credit and debit cards.

Debit and credit cards are an important part of our economic lives. These days, it is almost a surprise to go to a store and see someone pay with cash or a check.
There are many advantages of debit and credit cards, of course. They are easy to carry. You are not limited by the specific amount of money in your pocket. There is protection for cards that are lost or stolen, while money that is lost is just gone.

Obviously, credit cards have their dangers. The most obvious of these dangers is that they typically carry high interest rates. Once a person goes into credit card debt, it can be hard to dig out from beneath the payments.

There is also a lot of evidence that consumers spend more money when paying with credit cards than when they are spending cash. For example, Drazen Prelec and Duncan Simester reported studies on this topic in a 2001 issue of Marketing Letters. In one study, they told that randomly selected participants in the study would be offered the opportunity to purchase tickets to an actual professional basketball game that had just sold out. These tickets were highly desirable. Participants were told either that they would have to pay in cash or that they would have to pay by credit card. They were asked how much they would be willing to pay for these tickets. Those who were told they would have to pay by credit card were willing to pay over twice as much on average as those who were told that they would have to pay by cash.
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What is going on here?

There are many possible explanations for the observation that people pay more when using credit cards than when using cash.

For example, Richard Feinberg explored the link between credit cards and spending in a 1986 article in the Journal of Consumer Research. He varied whether people could see credit card logos while they were making purchases or leaving restaurant tips. People left higher tips and indicated that they would be willing to spend more for products when they could see a credit card logo at the time than if they could not.

In addition, people may pay less attention to prices when they are paying by credit card than when they are paying by cash. For example, the article by Prelec and Simester cites an unpublished study by Dilip Soman suggesting that people are less likely to remember the amount they spent on a purchase when they pay with a credit card than when they pay with cash.

This last finding relates to many observations in a variety of settings that people are better able to control their behavior when they have physical objects that help to guide their behavior than if they have to think conceptually. For example, people taking food at a buffet may have the desire to control the amount of food that they eat, but they still tend to fill their plate. Thus, they eat more overall if they are given a large plate than if they are given a small plate.

Likewise, driving behavior is affected by the type of speedometer in the car. For a while, car manufacturers were putting digital speedometers in cars. It is hard for people to judge the change in speed with a digital speedometer relative to an analog speedometer, because they have to actually think about the change in numbers.

Credit cards have this character as well. To stay within a budget using a credit card, you have to remember the prices for each of the items and then keep track of how those prices relate to your overall budget. If you have cash, then you can also limit the amount of cash that you carry as a way of limiting the amount you spend without having to remember all of the purchases you have made.

As you can see, many factors come together to make it difficult to maintain a budget when spending with credit cards. Perhaps the title of the paper by Prelec and Simester says it best: "Always leave home without it."

Monday, October 24, 2011

How are spending habits affected by the type of money in your pocket?

When I was a kid growing up in central New Jersey, I had relatives who lived near Atlantic City.  To visit them, I could get a bus not too far from my house that was nearly free.  You paid for the bus, but then got a voucher from one of the casinos for $10.  When you got to the casino, you could cash in the voucher, and they would give you a roll of quarters worth $10. 

Why did they give out quarters?

Quite a bit of research suggests that the form of money that people have affects the way that they spend money.  From an economic standpoint, every dollar is just as good as every other dollar, whether it is a coin, a bill, or a number stored in a bank that can be accessed by a debit card.  Psychologically, though, the form of the money you have affects what you will do with it. 

There are at least two things going on here.

First, there are transaction costs with money.  A transaction cost is any cost (in money or time or effort) that is required to spend money.  The casino gives you quarters, so that you can immediately unroll the quarters and dump them directly into a slot machine.  If they gave you a $10 bill, you would first have to change it into coins to use in the slot machine.  That extra effort would make it less likely that you would play the slots.  That is the same reason why bartenders give you your change in dollar bills.  They hope that you will stuff a few of them in the tip jar (which you should, they work hard).

Second, research suggests that the size of the bills that you are carrying affects how likely you are to spend and how much you spend.  A paper in the December, 2009 issue of the Journal of Consumer Research by Priya Raghubir and Joydeep Srivastava looks at this issue.  In a number of studies (many of them looking at real purchases), they found that when people had money in larger bills, they were less likely to spend money than when they had money in smaller bills or coins.  Of interest, though, once people decided to spend money, they tended to spend more money when making purchases with the larger bills than with the smaller ones. 

The authors of this study interpret the results as arguing that large bills are treated as less flexible than smaller ones, and that is why people are reluctant to spend them.  I’d like to give a different interpretation of this work, though, based on some research I did with Miguel Brendl and Tory Higgins.

The form of money that you have tends to remind you of particular kinds of purchases.  If you are carrying $1 bills with you, those bills are most typically used for small purchases like buying candy or a cup of coffee.  Larger bills are more associated with larger purchases. 

When you have a particular amount of money in small bills, the form of the money helps you to think about spending it in a series of small purchases.  You are willing to make these small purchases, though each of them will be for only a small amount.  So, you spend money easily, but you spend a small amount each time. 

When you have that same amount of money in large bills, you treat it as a lump sum.  That lump sum supports making a larger purchase.  Large purchases often require more deliberation than smaller ones, and so you are less likely to spend the large bills at any given moment.  When you do spend those bills, though, you will probably make a larger purchase.

What does this mean for your cash spending habits?

If you are the sort of person who tends to blow through a lot of money making lots of small purchases, then you should probably avoid carrying lots of small bills with you.  The combination of the transaction cost for making small purchases (you’ll have to get change for your large bills) along with the fact that large bills are not strongly associated with small purchases will help you to control your spending.

If you are the sort of person who tends to make large purchases on impulse (that is, you are penny wise and pound foolish), then you may want to avoid carrying around large bills.  These large bills will be associated with larger purchases, and you may find yourself feeling like you have the money to make these large purchases.  Instead, you should probably carry around a small amount of money in small bills to keep yourself from over-reaching.

Thursday, October 20, 2011

I could pick him out of a lineup anywhere. He had a big scar.

If you have a TV or a DVD player, chances are you have deep familiarity with the criminal justice system.  Watching the police solve a difficult crime makes for good and suspenseful entertainment.  And it is always so powerful to watch the victim of a crime identify the perpetrator from a lineup.  That eyewitness identification also has a huge influence on juror’s beliefs about the guilt of a defendant on trial.

Because of the importance of these eyewitness identifications, there has been a lot of research on factors that affect the reliability of identifications from police lineups.

An interesting study of lineups by Theodora Zarkadi, Kimberly Wade, and Neil Stewart appeared in the December, 2009 issue of Psychological Science.  This study looked at the best way to run a lineup when the perpetrator of the crime had a distinctive feature like a scar, a bruise, or a distinctive facial piercing. 

When an eyewitness sees someone with a distinctive feature, there is a tendency for them to focus just on that feature.  So, if the police pick up an innocent person who has a similar feature, the eyewitness is quite likely to mistakenly identify the innocent person on the basis of this feature.

It has become routine now to do lineups with photographs of suspects rather than with a live lineup.  By using photographs, it is possible to use Photoshop to remove or add features to faces.  This ability to alter pictures leads to two ways that police might change pictures to improve the accuracy of a lineup. 

The most straightforward possibility would be to remove the distinctive feature from a suspect.  If an eyewitness saw a scar, then the picture of the suspect could be shown without the scar. 

An alternative would be to add the same distinctive feature to all of the faces in the lineup.  That is, if the suspect is shown along with 5 other faces, the same scar could be added to all of the faces.

Which type of correction is more effective?

In one of the studies in this paper, people viewed 32 faces for two seconds each.  Of these, six of the faces had a distinctive feature like piercings, bruises, or scars.  (The distinctive features in this study were added to pictures of faces that did not originally have these features.) 

After a delay, people performed 12 lineups.  In half of those lineups, one of the faces that had a distinctive feature was presented along with 5 new faces.  In the other half of the lineups, all of the faces were new.  Participants in the study had to select the face they had seen before or say “none” if they thought all of the faces were new.

For half of the lineups that contained familiar faces, the distinctive feature was removed from the face that had been seen before.  For the other half of those lineups, the same distinctive feature was given to all of the faces in the lineup.

It turns out that adding the same distinctive feature to each of the faces led to more accurate performance than removing the distinctive feature.  People correctly identified the face they had seen about 50% of the time when all of the faces had the distinctive feature, but they identified it correctly only about 30% of the time when the distinctive feature was removed from the target face.  Finally, people were able to state when there was no familiar face present about 60% of the time, regardless of whether a familiar distinctive feature was added to all of the faces or not. 

This study demonstrates the importance of doing scientific research on practical questions like eyewitness lineups.  It is not obvious that law enforcement personnel would predict in advance that adding the same distinctive feature to all faces in a lineup would improve the reliability of eyewitness identification.  Over the years, though, psychological research has led to a number of improvements to the process of running lineups.

Monday, October 17, 2011

What you can do affects what you see.

I like to run.  It is very peaceful to go for a nice long run on a beautiful sunny day.  There are days when I feel like I can run forever.  My legs just keep moving.  On those days, I fix my eyes on a point in the distance and before I know it I am passing what I was looking at.  Other days, of course, I feel like I’m running in Jell-O.  On those days, the end of the block looks like it is a million miles away.

Of course, that must just be a metaphor, right?

Actually, there is growing evidence that what you are able to do with your body at any given time affects what you see.  A nice example of this work comes from a paper by Sally Linkenauger, Jessica Witt, Jeanine Stefanucci, Jonathan Bakdash, and Dennis Proffitt in the December, 2009 issue of the Journal of Experimental Psychology:  Human Perception and Performance. 

They had people sit at a table and judge the distance between them and a tool that was placed somewhere on the table.  For example, in one study, right-handed people sat at a table and a hammer was placed on the table.  They were to imagine picking up the hammer from the table.  On each trial of the experiment, the hammer was placed some distance away from them.  Then, they had to judge the distance between them and the hammer.  To make this judgment, the experiment who was sitting across from them opened up a tape measure (with the numbers facing away from the participant).  The participant directed the experimenter to lengthen or shorten the exposed ruler until they thought it was the same length as the distance from them to the hammer.

Now here’s the interesting part.  On some trials, the hammer was placed with the handle facing to the right, so that it would be easy to pick up the hammer by just reaching straight out for it.  On other trials, the hammer was placed with the handle facing to the left.  In order to pick up the hammer on these trials, people had to imagine reaching and turning their hand over to grasp the hammer normally.  This movement is awkward.  So, the hammer would be easier to pick up when it was on the right than when it was on the left.

When the hammer was placed so that it would be easy to grasp, people systematically judged the distances to be shorter than when the hammer was oriented so that it would be hard to grasp.  That is, the ease of picking up the hammer affected people’s judgments of how far away the hammer was in space.

Interestingly, left-handed people did not show the same pattern of data.  The left-handers judged the tool to be the same distance away regardless of whether it was oriented in a way that would make it easy to grasp or hard to grasp.  The authors point out that left-handers are usually more ambidextrous than right-handers, and so even though they were asked to imagine picking up the hammer with their left hand only, they may still perceive objects as if they will be grasped in a natural way regardless of how they are oriented.

Finally, I should point out that Dennis Proffitt and his colleagues have done a number of studies of the effects of actions on perception.  For example, they also find that people judge hills to be steeper when they are tired or weighed down by carrying a heavy backpack than when they are not.

These findings make clear that our visual system does not just give us a true picture of what is out there in the world.  Instead, the human visual system provides information that is useful for acting on the world.  It might take us a long time to reason through how likely we are to succeed at climbing a hill or running a distance or picking up a heavy tool.  By biasing our judgments of distance and steepness, though, our visual systems provide us with information that is available quickly and gives us a way of estimating whether we will succeed at a course of action.   

Thursday, October 13, 2011

The positive effect of action video games: Speed of visual processing

Periodically, I like to look at the effects of video games on thinking.  A few months ago, I posted a blog entry on the influence of video games on kids’ grades.  In the months after getting a video game system, kids show a drop in their grades.

I like to be even-handed, though, and so I want to talk about a positive influence of playing action video games on thinking.  There is growing evidence that playing action video games increases people’s ability to process visual information quickly and to make decisions based on that information.

Action video games are the ones in which there is a lot of activity on the screen, and the player has to take quick action in these situations.  Many of these action video games are Halo, Grand Theft Auto, and Call of Duty are violent.  The action has to be taken so that the player can avoid being killed in the game.

A paper in the December, 2009 issue of Current Directions in Psychological Science by Matthew Dye, Shawn Green, and Daphne Bavelier looked at differences between people who play video games extensively (at least 5 hours a week) and those who play rarely if ever.  They first analyzed 89 studies from a range of experimental tasks that required people to do things like search for a target shape on a computer screen or to quickly identify shapes on a screen in different conditions. 

They found that video game players were much faster to perform these tasks than non video game players.  One way you could be faster in any task, of course, is just to sacrifice accuracy for speed.  You could respond quickly, but be willing to get some number of answers wrong.  That is not what is happening here.  Video game players are just as accurate as non-video game players in these tasks, they are just faster.

Maybe this is a bias in the sample of people tested.  Perhaps those people who play video games a lot are the ones who happen to be able to do things quickly.  After all, if you tend to be slow in making decisions, you probably won’t have much fun being blown up regularly in games like Halo. 

To address this possibility, the authors also reviewed a number of studies in which people who were not video game players were either assigned to play action video games for 50 hours over 9 weeks or to play entertaining non-action games for 50 hours.  Later, all of these experiment participants performed visual experiments like searching for patterns on a screen.  In this training study, the non-video game players who played action games ended up being able to perform these tasks faster than the ones who played other games.  These studies suggest that there is something about action video games that speeds people’s ability to process and use visual information.

Finally, you might think that these action video games just make you more impulsive.  That is, perhaps people who play video games just respond very fast to all information on a screen.  That doesn’t seem to be true either.  The authors also reviewed a study in which there were some trials where items on the screen signaled that you were not supposed to respond.  Video game players were also quite good at keeping themselves from responding when that was appropriate. 

So, video games don’t make people trigger-happy, they just make people faster at processing and using visual information.  There are some tangible benefits to playing action video games after all.

Monday, October 10, 2011

You again! The role of significant others in our social interactions

Some patterns in our lives tend to repeat.  You may meet a new person, and suddenly find that you talk as though you were back in college with them.  Or, you may meet a new romantic interest, and you speak to them as if they were an old significant other.  Or you my have a boss and you find yourself talking to him as if he was your father.

What is going on?

It is hard to have to treat each new person in your life fresh.  After all, there must be some value to all of the experience you have had with other people you have met.

Research by Susan Andersen, Serena Chen, and their colleagues suggests that we do use our experience with important people in our lives to help us figure out how to act with new people that we meet. 

The basic idea is simple.  If you meet a new person, and he has some of the characteristics of your father, then you will engage in behaviors with that person that are similar to the kinds of interactions you have had with your father.  You will also assume (unconsciously) that this person will have other characteristics that your father has.  So, your interactions with this new person are being shaped unwittingly by your own relationship with your father.

This use of your knowledge of significant others in social settings is a double-edged sword.  On the positive side, recycling your social knowledge allows you to decide quickly how to interact with new people.  Furthermore, when a person reminds you of a significant other from your past, it allows you to develop a close relationship with him or her fairly quickly.

On the negative side, you are reminded of these significant others unconsciously.  You are not deliberately saying, “This man reminds me of my father, so I am going to treat him that way.”  It happens without your awareness.  That can lead to a few potential problems.

First, not every relationship with a significant other from our lives is a healthy and positive relationship.  If you had an uncomfortable relationship with a parent, then you may find yourself having uncomfortable dealings with new people who remind you of that parent.  You may experience this discomfort without knowing why you feel negatively toward that person.

Second, while a new person in your life may remind you of someone from your past, that person is still unique.  The research by Andersen and Chen suggests that once you make a link between some new person and a significant other from your past, you begin to assume that this new person shares other characteristics with this significant other.  As a result, you may fail to pick up on subtle differences between this new person and people from your past. 

If you find yourself in a new relationship with someone (whether it is a friendship, a work relationship or a romantic relationship) and you find that you are starting to repeat old patterns of behavior, then ask yourself whether there is someone from your life that is like this person.  If you do a little digging, you may discover that you are actually treating this new person as if they were someone else.  Once you know why you are treating a new person using old patterns of behavior, you can try to be more aware and mindful of creating unique patterns of interaction   

Thursday, October 6, 2011

What do you pick when you see a sequence of options?

Some choices are made when all of the options are right there in front of you.  For example, if you go to the supermarket, you see the wall of tomato sauce, and you can stand in front of it and compare all of the different brands and the different flavors of sauce for each brand.

For other choices, though, you get information about the options one at a time, and then you have to make a decision.  For example, if you are buying a new car, you have to go from one dealership to the next, test driving cars and talking to salespeople.  Students who apply for graduate schools may visit the schools to which they have been accepted in a sequence until they have to make a decision about where to go.

What happens in those cases?

A paper by Antonia Mantonakis, Pauline Rodero, Isabelle Lesschaeve, and Reid Hastie in the November, 2009 issue of Psychological Science looks at this question.  They had people sample a number of wines in a sequence.  After sampling the wines, they had to decide which one they preferred.  Participants were assigned to try 2, 3, 4, or 5 wines, and the sequence was determined randomly.

The choices people made depended both on the number of wines they sampled and their expertise about wines.  For people who did not have much expertise, they were most likely to choose the first wine they sampled.  For example, when there were two wines, people selected the first wine they tried 70% of the time.  For a sequence of five wines, they still picked the first one 50% of the time (but if they had chosen a wine at random, they would only have chosen this wine 20% of the time). 

For people who had more expertise, there was a combination of two effects on choice.  There was still a tendency for experts to select the first wine they tried.  When sampling only 2 wines, they picked the first one 80% of the time.  When sampling 3 wines, they picked the first one about 65% of the time.  But, when they sampled 5 wines, they picked the first one only about 25% of the time.  In this case, they picked the last wine they tasted about 40% of the time. 

Why is there a difference between experts and non-experts?  The wine experts have a more sophisticated ability to taste differences among wines.  So, they keep comparing each new wine they sample to their favorite.  There is a tendency for the first wine to be a favorite, because it sets the standard for comparison.  However, each new wine that is sampled will have some new flavors, and so they provide a reason to pick the last wine tasted.  The experts taste these new flavors and so they tend to stick with the most recently tasted wines, particularly when they taste a long sequence of wines.  The non-experts can’t taste much difference among the wines, so they often stick with the first one they sample.

One thing that is interesting about these results is that the wines in the middle of the sequence are not chosen very often.  There is an overwhelming tendency for people to pick either the first or the last of the items in the sequence.  For example, for experts choosing from among 5 wines, the first and last items accounted for about 65% of their choices, while the remaining 3 items accounted for only about 35% of the choices.

What does this mean for you?

If you are in a situation in which you have to sample the items in a sequence, and if the choice is important to you (say a car or a graduate school), you should try to write down your criteria for making a choice in advance.  Try to evaluate each option after seeing it by using these criteria.  If you discover a new dimension for evaluating options after seeing the third or fourth item, go back and evaluate the earlier items along that dimension as well.  Do what you can to give each of the options (even the ones in the middle of the sequence) the best chance to be the one that gets chosen.   

Monday, October 3, 2011

When cigarette warnings backfire

Cigarettes are a clear public health problem.  A significant number of people who smoke regularly throughout their lives will develop serious health problems including lung cancer, heart disease and emphysema.  And for 30 years now, governments around the world have worked to change people’s attitudes toward smoking.  Indeed, the US government wants to institute a number of graphic new warning labels on cigarette packages to deter smokers.

There are two classes of measures that have been taken to fight smoking (and related public health problems like alcohol and unhealthy eating).  One is to make smoking less attractive in the short-term to counteract the positives of smoking.  The other is to provide warnings about the dangers of smoking.

As I have written before in previous entries, one reason why smoking is so difficult to quit is that it provides some pleasure in the short term (and for the addicted smoker also the absence of painful cravings).  The health risks are in the long-term and so they have a weaker pull over current behavior.  Thus, measures like making it illegal to smoke indoors in public places and raising the price of cigarettes through taxes are aimed at decreasing the pleasure of smoking in the short term.

The other major public health initiative is to influence the information that is available about smoking.  For example, in the US, there are very few venues in which cigarette manufacturers are allowed to advertise, and so there are few positive messages about smoking in mainstream media.  In addition, by law, cigarette packs have to come with a warning about the dangers of smoking.

A paper by Jochim Hansen, Susanne Winzeler, and Sascha Topolinski in the January 2010 issue of the Journal of Experimental Social Psychology examined the effectiveness of these warnings on the attitudes of smokers toward smoking. 

The authors reasoned that there are two kinds of smokers.  Some smokers find that smoking is an important part of their self concept.  They are truly smokers.  Other people smoke cigarettes, but that is not an important part of their self-concept.  They do not identify strongly as smokers. 

There are also two kinds of warnings that are often given about smoking.  Some of those messages are about the negative social consequences of smoking.  For example, a warning might point out that “Smoking makes you unattractive.”  Most of the warnings that actually appear on cigarette packs tend to focus on the danger of death associated with cigarettes, issuing warnings like “Cigarettes are dangerous for your health” or “Cigarettes cause lung cancer.”   

In other posts, I have discussed the idea of mortality salience:  that being reminded of your own mortality can affect your self-esteem.  Hansen and colleagues reasoned that a cigarette warning that highlights that cigarettes may cause death could actually backfire.  When someone identifies strongly as a smoker, then a warning that focuses on mortality can threaten that person’s self-esteem.  Because they identify strongly as a smoker, the easiest way to boost their self-esteem is to increase their favorable attitude toward cigarettes.

To test this hypothesis, a number of cigarette smokers were tested.  Some of these people were ones for whom smoking was an important part of their self-concept, while others were ones for whom smoking was not that important to their self-concept.  The smokers read either a warning that talked about how smoking decreases a person’s attractiveness or a warning that talked about how smoking causes death.  Later, these people rated their attitude toward smoking. 

As these researchers predicted, if people thought smoking was an important part of their self-concept, they rated smoking as much more attractive if they read a warning that focused on death than if they read a warning focused on attractiveness.  That is, for the group of smokers whose identity is bound up with smoking, the kinds of warnings that are typically shown on cigarette packs actually backfire.

This research suggests the importance of gathering evidence about programs that relate to the behavioral aspects of public health problems.  On the surface, nobody could oppose big warnings on cigarettes that trumpet their health risks.  However, we must be careful, because these warnings could actually do more harm than good.