But now change the offer: Here's the same knife again, and beside it is four $100 bills. I can take either but not both. I easily choose the cash.
In your scenario you stand to gain $400 through either choice. To me, the more interesting question is how payment medium affects your willingness to spend. It is a subtle reversal of your scenario. Does handing over $400 in notes change your
perceived value of the knife compared to $400 on credit or tap & go?
My initial guess was something like what you just described about credit purchases not feeling like "real money", but also adding that my own money perhaps gets less "real" to me the longer it's been in my bank account.
I think this is a huge component. At least in my tweaking of the question... it is the only component.
If you are fortunate enough to live comfortably, digital transactions dont require you to follow your purchases closely. With cash you actually have to count what is in your wallet. Do you have enough coins and notes? You don't want to be embarrassed at the cashier! If you dont have enough money... could you really be bothered going to an ATM and withdrawing more? Are you going to
write a check for that carton of milk? The extra friction and constraints in those 'physical' transactions make you scrutinise your impulses more - particularly for small purchases.
If you do use pay-wave flippantly for small purchases, I think that affects your relationship with money over time. The first is that 'small' probably creeps up to larger and larger amounts. The second is that you probably start to make purchases with a gut intuition based on an imprecise estimation of your wealth. So long as you aren't overdrawing your account and the purchases are an insignificant proportion of your wealth, you aren't required to think about your purchases. Of course the fallacy of that behaviour is death by a thousand cuts.
When I'm considering a non-essential purchase, I assign too low a value to the money I already have, just because I already have it.
Again, I am going to keep hammering the payment medium. I know you didnt really focus on this in your original post - nor did you say how you consume.
It could be related to the
framing effect. When you use physical currency you are literally giving something up - you are losing something to gain something. When you use digital transactions of course you are similarly draining money from your account. Rationalising that loss requires more mental gymnastics. What do those rather abstract numbers in your account mean?? How accurate is that accounting in your head? Did you even look at them recently? If you get mentally exhausted and skip that process, the money just magically disappears. The transaction might approach a framing where emotionally it feels like you just gained more than you lost (a.k.a you did not properly rationalising that you also just lost something).
Something is not calculating properly in my brain.
Behavioural economics is a dark-art not a science
