Relying on Pain to Control Spending Behavior

Monday, March 07, 2011

Scott Rick

Assistant Professor of Marketing
Ross School of Business, University of Michigan

How do consumers control their spending? From the standard economic perspective, consumers avoid making a purchase if the opportunity cost of the good under consideration exceeds the benefits of buying the good. However, consumers appear to rely on emotional distress (a “pain of paying”) as a proxy for opportunity costs. Because these feelings are an imperfect proxy, some consumers (tightwads and spendthrifts) chronically spend differently than they would ideally like to spend.