The Hedonics of Debt

Psychologists and economists often discuss the “pain” of paying for our purchases. Four experiments examine how people evaluate prospective debt payments, analyzing how different features of a loan (down payment, final payment, duration, monthly payments) affect willingness to accept the loan. Akin...

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Bibliographic Details
Published inFrontiers in psychology Vol. 11; p. 537606
Main Authors Shin, Faith, Cohen, Dov, Lawless, Robert M., Preston, Jesse L.
Format Journal Article
LanguageEnglish
Published Frontiers Media S.A 17.11.2020
Subjects
credit
debt
duration neglect
financial decision-making
hedonics
pain of paying
Psychology
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Summary:Psychologists and economists often discuss the “pain” of paying for our purchases. Four experiments examine how people evaluate prospective debt payments, analyzing how different features of a loan (down payment, final payment, duration, monthly payments) affect willingness to accept the loan. Akin to previous findings on physical pain, participants exhibited duration neglect and overweighted final moments. However, participants also focused heavily on the monthly or average payment (unlike in retrospective studies of physical pain where only peak-end moments seem to count). In Experiment 2, participants’ willingness to accept the loan was not significantly diminished by making it more expensive through keeping the same monthly payment but extending the length of the loan by 40% (evincing duration neglect). Further, in Experiments 3 and 4, we show that participants increased their willingness to buy if loans were made longer and more expensive by adding smaller, less “painful” payments to the end.
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Edited by: Rhonda Swickert, College of Charleston, United States
This article was submitted to Personality and Social Psychology, a section of the journal Frontiers in Psychology
Reviewed by: Steven Ongena, University of Zurich, Switzerland; Adam Craig, University of Kentucky, United States; Sajeev Varki, University of South Florida, United States
ISSN:1664-1078
1664-1078
DOI:10.3389/fpsyg.2020.537606