July 02nd 2021

Cash vs. Card

Psychological mechanisms that influence our decision to use a specific means of payment

There are some obvious factors that influence the decision to pay with card or with cash. Unconscious psychological factors, even if not consciously considered, also influence our behavior and therefore this decision. In a research project, Yevgen Bogodistov, a lecturer in the Department of Business Administration Online, has tried to find answers to the questions related to the psychological mechanisms for choosing a means of payment.

The aim of this study was to understand psychological distance in the context of different means of payment. The concept of psychological distance describes the way we perceive different objects or situations. In fact, the same event is perceived differently depending on the circumstances. Think of an exam for illustration. Compare for yourself how you feel in the following situations: "You have to take the statistics exam tonight" vs. "You have to take the statistics exam next semester." As you notice, you think about the same event in different ways: you think very concretely and in detail about the exam tonight, while you think abstractly and vaguely when it comes to the same event in the future. While you think in detail, you ask yourself, "How exactly can I prepare? Where is the exam? What should I take with me?" On the other hand, when you think abstractly, ask yourself questions like, "Why should I think about this? Why is it important? Should I start preparing or wait another week?" These thought streams lead to different actions and even an immediate physical reaction (e.g., stress, anxiety, or nervousness).

In these situations, scientists argue, a person changes the way he or she processes information. The lower the psychological distance, the more persons tend to process information on a concrete level; the higher the psychological distance, the more persons tend to process information on an abstract level.

In his first study, Yevgen Bogodistov explored the implicit association people have with payments (40 participants in total). He found that cash is associated with low psychological distance, while a card payment is associated with high psychological distance. This test had an important implication. Think back to the example with the test for a moment. Those who saw the cash began to think more concretely, as you did on the exam that would take place tonight. In contrast, those who saw debit cards started thinking like you did about the exam next semester. The question now arose as to whether the participants had really begun to think differently. To answer this question, an additional experiment was designed.

Based on the ideas of Liberman et al. (2007), a picture of a product was shown with cash or a credit card. Participants were asked to formulate a question that ended with "...buy this product?". It was assumed that participants who are in the abstract thinking mode will formulate "why" questions, such as "Why do I need to buy this product?". In contrast, participants who are in the concrete thinking mode were assumed to formulate "how" questions, such as, "How can I buy this product?". The results were significant: participants who saw the product picture with a credit card manipulation tended to ask more general questions (why questions).

These two studies can be summarized with two implications: First, each time a particular payment method is suggested to someone (e.g., paying for a product with a card), he/she might change his/her mindset and start perceiving that product on a more abstract level. Second, there could be more appropriate and inappropriate payment processes. Think about the newly announced iPhone that you can pre-order. Since you have never had this product in your hands and barely know the technical details, but love the design (high psychological distance, abstract thinking), an offer to pay for the pre-order by card would be a fitting condition. What if you are asked to pay in cash? Will you perceive the iPhone differently then? Will you start thinking about the technical aspects of the iPhone? Or will you refuse to pay because you feel uncomfortable?

These questions could have big implications for companies working in marketing, consumer behavior and payment process design.


Reference: Liberman, N., Trope, Y., & Stephan, E. (2007). Psychological distance. In A. W. Kruglanski & E. T. Higgins (Eds.), Social psychology: Handbook of basic principles (Vol. 2, pp. 353–383).