Payment Depreciation: The Behavioral Effects of Temporally Separating Payments from Consumption
Research suggests that individuals mentally track the costs and benefits of a consumer transaction for the purpose of reconciling those costs and benefits on completion of the transaction (Prelec and Loewenstein 1998; Thaler 1980,1985). In transactions where costs precede benefits, this can lead to a systematic and economically irrational attention to sunk costs (Arkes and Blumer 1985; Thaler 1980). In this article, we consider economic exchanges in which costs significantly precede benefits, as with many prepayment types of consumer transactions. We predict a consumer will gradually adapt to a historic cost with the passage of time, thereby decreasing its sunk-cost impact on the consumption of a pending benefit. We label this process of gradual adaptation to costs 'payment depreciation." In a series of experiments, we find evidence of payment depreciation across a range of consumer transactions and offer insight into the behavioral implications of temporally separating costs from benefits. Copyright 1998 by the University of Chicago.
Volume (Year): 25 (1998)
Issue (Month): 2 (September)
|Contact details of provider:|| |
When requesting a correction, please mention this item's handle: RePEc:ucp:jconrs:v:25:y:1998:i:2:p:160-74. 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: (Oxford University Press)
If references are entirely missing, you can add them using this form.