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Payment Depreciation: The Behavioral Effects of Temporally Separating Payments from Consumption

  • Gourville, John T
  • Soman, Dilip
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    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.

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    Article provided by University of Chicago Press in its journal Journal of Consumer Research.

    Volume (Year): 25 (1998)
    Issue (Month): 2 (September)
    Pages: 160-74

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    Handle: RePEc:ucp:jconrs:v:25:y:1998:i:2:p:160-74
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