A giant snowball rolling down a snow covered hill.


Spenders Yield to ‘What the Hell Effect’

We all know the feeling. While mentally savoring the appetizers on the menu, our resolve to diet slips away. That same feeling has already hit by the time we slap our credit card down on the counter at Macy’s.

It’s so common that psychologists have named it the “what the hell effect.” Once poised at the edge, we might as well leap, right? But after the leap, people who usually try to maintain a certain level of self-control in their everyday lives feel awful.

Three marketing professors have now teased out the conditions that trigger this during the act of charging something on a credit card. They have found that people spend more money if they already have a balance on their credit card. But, oddly, a high-dollar credit limit on the card can mitigate that effect and help to restrain the cardholder’s spending.

Their findings are counterintuitive and a bit difficult to grasp. Here’s how Keith Wilcox, a marketing professor at Babson College in Boston, explained them in a recent interview with Squared Away:

First, he and fellow researchers wanted to find out whether people who already had a balance on their cards spent more than those who didn’t. They recruited 115 students and staff at a small private college eager to bid on an Apple iPad in hopes of getting a deal. Prospective bidders were told that if they won they would have to pay for the iPad with a credit card. Sure enough, those who carried a balance on their card bid more for the device than those who had none.

Psychologists would explain that what’s happening is that higher bidders disengaged emotionally from their goal of keeping their debts low. It’s a trick we play on ourselves – if we disengage, the indulgence isn’t so painful. “What the hell,” the highest bidder for the iPad might’ve thought.

In a different experiment, the credit limit on the card also affected spending. The researchers asked 128 U.S. consumers to answer questions about their credit-card spending habits, card balances, recent payments, and purchases.

The authors also assessed each consumer’s level of self-control. Again, they found that individuals with self-control tended to spend more money if they had a card balance than individuals who did not. But those with higher dollar spending limits were inhibited from spending as much money as those with lower limits.

“When you incur the same balance on a credit card with a [high] $10,000 credit limit, it doesn’t seem like such a big deal,” Wilcox said. “You’re less likely to engage in the ‘what the hell effect.’ ”

Self control is a funny thing. It’s something to think about.

The research was also conducted by Lauren Block at Baruch College and Eric Eisenstein at Temple University. It will be published in a special issue on financial behavior in the November issue of the Journal of Marketing Research.

Other Squared Away posts featuring JMR’s research are:
“How to Save: Imagine You’re Older”
“The Power of Compound Interest”
“How Emotions Drive Investing”

3 Responses to Spenders Yield to ‘What the Hell Effect’

  1. Robert Baranoff says:

    One cannot tell from the short synopsis given here, but isn’t it conceivable that those who don’t carry a balance exercise more self-control (which is why they don’t have a balance) which contains any urge at self-indulgence? Also, aren’t these the very people to whom card issuers are likely to give the bigger balances?

  2. louis avalos says:

    Very interesting study. Have you thought about studying if people are born savers or spenders? As a financial planner those that spend do not want a change in their habits. Whereas savers no problem — it’s what they do. So this begs the question: are we born savers or spenders and can we change?

  3. Dora says:

    What the hell indeed! What a great name for the effect. The idea that we can disassociate emotionally from what we’re doing – when we know it’s probably not the best choice – is utterly fascinating.