12 Jun 2019
Professor Madan Pillutla explains how to improve good judgement in making financial choices and the importance of removing bias from investment decisions
30 Aug 2017
LBS expert: Touchless payers could rack up unprecedented debt
Consumers planning to pay for their shopping by contactless could be in store for a nasty shock, according to research from a London Business School professor whose prior findings would suggest touchless payment could see shoppers rack up an unprecedented amount of debt.
Niro Sivanathan, Associate Professor of Organisational Behaviour, London Business School, explains: “Parting with cash is psychologically painful. Consumers are therefore less likely to spend as much when cash is the only payment option available. Paying with credit decouples the pleasure of consumption from the pain of paying. Paying with contactless payment further reduces the friction and anaesthetises the psychological pain that accompanies payment, seducing us into splashing out even more on those pricey purchases.”
It’s a powerful anaesthetic and touchless and mobile payment options are now more widely available than ever.
Sivanathan explains, the research finds that not only are consumers more likely to purchase goods when such decoupling is present, but they are also willing to pay more for those goods.
“The more consumers can decouple the pleasure of consumption from the psychological pain of expenditure, the bigger the risk of a financial hangover,” Sivanathan warns.
The findings could also have worrying implications for people with low self-esteem, who find solace in purchasing high-status goods.
Research by Sivanathan and his co-author Nathan Pettit, Assistant Professor of Management and Organisations, NYC Stern School of Business, finds purchasing luxury goods on credit is especially attractive to those who have low self-esteem.
Sivanathan says: “In addition, our research shows purchasing luxury goods on credit, is especially attractive to those who have low self-esteem. These individuals seek to boost their self-esteem by purchasing high-status goods to make them feel better about themselves. The combined effect of low self-esteem, high status goods and the ability to purchase on credit creates a ‘perfect storm’. This can be dangerous; consumers with low self-esteem are at higher risk of falling into debt.”