Monopoly Money: The Effect of Payment Coupling and Form on Spending Behavior Priya Raghubir New York University Joydeep Srivastava University of Maryland, College Park This article examines consumer spending as a function of payment mode both when the modes differ in terms of payment coupling (association between purchase decision and actual parting of money) and physical form as well as when the modes differ only in terms of form. Study 1 demonstrates that consumers are willing to spend more when a credit card logo is present versus absent. Study 2 shows that the credit card effect can be attenuated when people estimate their expenses using a decomposition strategy (vs. a holistic one). Noting that credit card and cash payments differ in terms of payment coupling and form, Studies 3 and 4 examine consumer spending when the payment mode differs only in physical form. Study 3 demonstrates that consumers spend more when they are spending scrip (a form of stored value certificate) versus cash of the same face value. Study 4 shows that the difference in spending across payment modes (cash and gift certificates) is attenuated by altering the salience of parting with money through contextual manipulations of the differences between cash and gift certificates. Keywords: money illusion, gift certificates, credit cards, subjective value of money, economic psychology With the proliferation of different payment modes in recent years, consumers have a wide array of payment options to choose from in making their purchases. Typically, consumers have the option to purchase with cash, a check, or a credit or a debit card. However, other payment modes such as bank drafts, money orders, traveler’s checks, gift certificates, gift cards, coupons at fairs, chips at gaming houses, stored value cards such as those used in mass transit and tolls, and so forth are quite common in the marketplace. Some types of gift cards are almost identical to debit cards, such as the American Express or the Visa gift card. Further, the advent of Internet com- merce has spurred the growth of new payment modes such as Paypal. Despite the proliferation of these diverse payment modes, and that the mode of payment is an important contextual element in any transac- tion, research on the influence of payment mode on consumer spend- ing decisions and behavior is relatively sparse (for a review see Raghubir, 2006). Do consumers spend differently when using one payment mode relative to another mode? For example, do consumers spend more when they receive $50 in the form of a gift card than in the form of cash? If indeed they do, then why? This research ad- dresses these issues. Although a growing body of literature demonstrates that the nor- mative principle of descriptive invariance, which holds that prefer- ences should not vary when the same objective stimuli are represented differently, is commonly violated in the domain of money (e.g., Gourville, 1998; Raghubir & Srivastava, 2002; Shafir, Diamond, & Tversky, 1997; Shefrin & Thaler, 1988; 1985), relatively few studies have investigated differences in spending behavior as a function of the mode of payment. The few studies that exist demonstrate that con- sumers tend to spend more when paying with a credit card than when paying by cash or check, after controlling for other factors (Cole, 1998; Feinberg, 1986; Hirschman, 1979; Prelec & Loewenstein, 1998; Prelec & Simester, 2001; Soman, 2001). Tokunaga (1993) argued that a credit card is a convenient payment mode that allows people to defer and spread out payments and, thus, consumers differ in how they treat credit card and cash purchases. Review of the previous research on the effect of payment mode on spending behav- ior suggests that the focus has been primarily on the difference between credit card and cash payments. Further, the phenomenon of higher spending when paying with a credit card than with cash has been attributed to the temporal separation of the purchase decision and the actual payment in the case of credit card payments (Prelec & Loewenstein, 1998). We refer to this specific feature of payment mode as payment coupling. In this article we argue that payment mode can be differentiated in at least two ways: payment coupling and payment form. Pay- ment coupling refers to the extent to which the decision to pur- chase (or spend) is temporally associated with the actual parting of money (Loewenstein & Prelec, 1992; Prelec & Loewenstein, 1998; Thaler, 1999) whereas payment form refers to differences between Priya Raghubir is a professor at the Stern School of Business, New York University. Joydeep Srivastava is an associate professor at the Robert H. Smith School of Business, University of Maryland, College Park. Order of authorship is alphabetical and reflects equal contribution by both authors. The authors acknowledge the helpful comments of seminar participants at the Hong Kong University of Science and Technology, the London Business School, the University of Paris at Dauphine, and the University of Texas at Austin. This research was partially funded by the Hellman family grant and the undergraduate research apprentice program grant awarded by the University of California at Berkeley to the first author and the graduate research board summer award awarded by the University of Maryland to the second author. Correspondence concerning this article should be addressed to Priya Ra- ghubir, Marketing Department, #809 Tisch, Stern School of Business, New York University, 44 West 4 th Street, New York, NY 10012-1126. E-mail: raghubir@stern.nyu, or Joydeep Srivastava, Department of Marketing, Robert H. Smith School of Business, VMH 3453 Van Munching Hall, University of Maryland, College Park, MD 20742-1815. E-mail: srivasta@rhsmith.umd.edu Journal of Experimental Psychology: Applied Copyright 2008 by the American Psychological Association 2008, Vol. 14, No. 3, 213–225 1076-898X/08/$12.00 DOI: 10.1037/1076-898X.14.3.213 213