The Pain of Paying and Tightwaddism: New Insights and Open Questions

Abstract

How do people control their spending? From the standard economic perspective, people avoid making a purchase if the opportunity cost of the good under consideration exceeds the benefits of buying the good. However, people appear to rely on emotional distress (a “pain of paying”) as a proxy for opportunity cost. Rick, Cryder, and Loewenstein (2008) found that some people (“tightwads”) chronically experience a high pain of paying and often spend less than they would ideally like to spend. Other people (“spendthrifts”) chronically experience an insufficient amount of pain and often spend more than they would ideally like to spend. This chapter reviews recent research into the pain of paying and tightwaddism, and poses several open questions.

Keywords: Consumer Financial Decision Making, Consumer Behavior, Behavioral Economics, Marketing

JEL Classification: C91, M31