This pain of parting with our money can keep us from overspending, but the negative aspect is that it can rob us some of the joy in consuming. This psychological cost, what Prelec calls a “moral tax”, can be reduced in various ways. Pricing instruments such as bundling – including “free” goods along with the purchase of a main good, can take away some of this “moral tax”. Prepayment is another method, even when there is no financial advantage. For example, people have been shown to prefer to pay in instalments for vacations (even though they’re losing some of their cash liquidity).
And once they’re abroad they also find it easier to spend in foreign currency, treating it with much less seriousness than with the “real money” of their native country. Companies such as Club Med have latched onto this kind of psychology, where their resort guests buy plastic chips to use instead of cash.
For me, I eventually transitioned to using e-payments in Beijing. I’ve found the cashless system quite staggering in its seamlessness, its convenience. It is like living in a world where you get all the benefits of spending, without the pain of paying.
Perhaps this is better for economies, where it could be beneficial if people spend their money more freely, and many governments around the world are trying to encourage this. There is an old English saying: “Money, like manure, does no good till it is spread.” But sometimes, this kind of free spending, without any friction at all, leads to a kind of uneasiness.
Perhaps this is the “moral tax” Drazen Prelec refers to, which is a psychological tendency to feel opportunity costs as real pain. In other words, I might be feeling this uneasiness because I am imagining that I could be spending that money on other things instead.
As more societies move from cash-based to cashless, the way we spend might change. But money will remain a governing force in the lives of humans.
Weird West
This article is part of our Weird West series. Back in 2010, a team at the University of British Columbia pointed out that psychology research contains a major flaw: much of it is based on samples entirely from Western, Educated, Industrialised, Rich and Democratic – or Weird – societies. The researchers often assumed that their findings would be applicable to people anywhere. But when they did a review, the university team found that from reasoning styles to visual perception, members of Weird societies are, in fact, “among the least representative populations one could find for generalising about humans”.
From the mainstream media to academia, however, it remains common to see the Weird as “normal” – or at least as a “standard” against which other cultures, and people, are judged. In this series, we dig into what this looks like in everyday life. What habits and ways of thinking are common in Weird societies that people living elsewhere in the world might find, well, weird? And what does this tell us, not only about cultural differences, but about ourselves? From when we shower to how we shop, this series re-examines the behaviours often taken for granted – and explores how the “standard” is rarely the best, or only, way.
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