Experiencing costs and benefits of a loan transaction: The role of cost-benefit associations
Financial transactions involve costs and benefits. This also holds for loan transactions where the loan itself constitutes the main cost and the loan-financed possession constitutes the main benefit. This paper aims to investigate how the way consumers mentally associate costs and benefits influences their evaluation of these costs and benefits. In line with previous research we distinguish between strength and direction (costs bring to mind benefits or vice versa) of cost-benefit-associations. We posit that the occurrence of cost-benefit-associations constitutes a meta-cognitive experience which may influence consumer judgments in different ways. It may influence the evaluation of the base cognition and it may influence the evaluation of associated cognition. Whereas existing theorizing points to an effect on the former, an effect on the latter is equally conceivable. A field study with actual credit users and an experiment identify relations other than those previously assumed. If benefits elicit thoughts of costs, the perceived cost (here: loan burden) increase. If costs elicit thoughts of benefits, no effects on the transaction experience are observed. Implications for the theoretical analyses of cost-benefit-associations and for future research aiming to alleviate perceived loan burden are derived.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Thaler, Richard H, 1990. "Saving, Fungibility, and Mental Accounts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 193-205, Winter.
- Drazen Prelec & George Loewenstein, 1998. "The Red and the Black: Mental Accounting of Savings and Debt," Marketing Science, INFORMS, vol. 17(1), pages 4-28.
- Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 609-43, October.
- Kristina Shampanier & Nina Mazar & Dan Ariely, 2007. "Zero as a Special Price: The True Value of Free Products," Marketing Science, INFORMS, vol. 26(6), pages 742-757, 11-12.
- Shafir, Eldar & Thaler, Richard H., 2006. "Invest now, drink later, spend never: On the mental accounting of delayed consumption," Journal of Economic Psychology, Elsevier, vol. 27(5), pages 694-712, October.
- Heath, Chip & Fennema, M. G., 1996. "Mental Depreciation and Marginal Decision Making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 68(2), pages 95-108, November.
- Richard H. Thaler, 2008.
"Mental Accounting and Consumer Choice,"
INFORMS, vol. 27(1), pages 15-25, 01-02.
- Joseph Guiltinan, 2010. "Consumer durables replacement decision-making: An overview and research agenda," Marketing Letters, Springer, vol. 21(2), pages 163-174, June.
- John P. Watkins, 2009. "Corporate Profits and Personal Misery: Credit, Gender, and the Distribution of Income," Journal of Economic Issues, M.E. Sharpe, Inc., vol. 43(2), pages 413-422, June.
- Heath, Chip & Soll, Jack B, 1996. " Mental Budgeting and Consumer Decisions," Journal of Consumer Research, Oxford University Press, vol. 23(1), pages 40-52, June.
- Hirst, D. Eric & Joyce, Edward J. & Schadewald, Michael S., 1994. "Mental Accounting and Outcome Contiguity in Consumer-Borrowing Decisions," Organizational Behavior and Human Decision Processes, Elsevier, vol. 58(1), pages 136-152, April.
When requesting a correction, please mention this item's handle: RePEc:eee:joepsy:v:31:y:2010:i:6:p:1047-1056. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.