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May 13, 2013

Gain from Pain of Paying

image Research in neuroeconomics suggest that people actually find it painful to pay for things with higher prices, and the act is more painful when the payment is made in hard cash.

A 2007 study by U.S. researchers showed that pain centers of the brain were activated when participants viewed products with higher prices. In particular, the activation of insula, which is the part of the brain associated with pain processing, discouraged the purchase.

Further, it was observed that paying by cash was more painful than using credit cards. This could explain why people tend to spend more with credit cards than with cash. So, carrying enough cash for shopping than relying on credit cards could actually control spending.

Other research also suggest that the need to make immediate payment in cash can also deter a person from making a purchase. Apparently, instalment purchase schemes are successful for purchase of household equipment as they tend to alleviate the pain of immediately parting with a huge amount of cash.

Meanwhile, pre-payment can be useful in checking spending. For example:- the use of pre-paid cards for travel, mobile top-ups, online shopping etc. So, you may be able to enjoy your holiday trip better if at least the expected spending is taken care of by pre-payment.