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| Understanding Consumers’ Credit Use |
| Tuesday, May 31, 2016 |
| 3:00 PM–3:50 PM |
| Vevey 3 & 4, Swissotel |
| Area: OBM; Domain: Translational |
| Chair: Gordon R. Foxall (Cardiff University) |
| Discussant: Asle Fagerstrøm (Westerdals Oslo School of Arts, Communication and Technology) |
| Abstract: A notable change in consumer behavior over the past few decades has been the increasingly use of credit cards. Arguments for using credit card are convenient means of payment, a resource in case of emergencies, and a means of establishing a good credit history. In addition, credit cards are no longer a convenient way of paying at a restaurant and at a department store for the wealthy consumers. Credit cards have today become a common financial service by consumers in all social strata. Although most consumers manage their finances well, a significant minority gets into serious debt due to compulsive buying. This symposium aims to contribute to our understanding of consumers’ use of credit cards by the use of behavior sciences and behavioral economics. The first paper explores the endowment effect to the issue of replacing a broken item versus buying it for the first time. This was done in the context of buying the item with cash or credit. The second paper explores how different situational conditions impact consumer credit use. |
| Keyword(s): Behavioral Economics, Consumer Behavior, Consumer Credit, Discounting |
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| The Impact of Situational Conditions to Consumer Credit Use |
| ASLE FAGERSTRØM (Westerdals Oslo School of Arts, Communication and Technology), Donald A. Hantula (Temple University), Lars Syndnes (Westerdals Oslo School of Arts. Communication and Technology) |
| Abstract: The current study seeks to contribute to an understanding of how situational conditions impact upon consumer credit use. An experiment with 19 participants was conducted. A simulated purchasing situation was devised with two different situational conditions. The first situation (“can wait”) indicated that the participants have the product but could buy a new model that had recently had been launched. The second situation (“need it now”) was one where a much-needed product had broken down, and they had to buy a new one as soon as possible. For both situations, the participants were told that they could either save money for the product and get it in the future, or buy the product on credit and get it now. A titration procedure over accepted price was run for the credit alternative over seven conditions: save money and get the product in 1, 3, 5, 7, 14 and 21 week(s). The point where participants switched between saving and purchasing the item on credit was recorded. The result shows that the two situational conditions influenced the participants’ willingness to choose the credit alternative differently. We discuss the results in light of discounting models. Moreover, practical implications as well as suggestions for further research are given. |
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The Endowment Effect as a Motivating Operation in Credit Purchases |
| Emily Hiserodt (Temple University), DONALD A. HANTULA (Temple University) |
| Abstract: The endowment effect is the phenomenon in which people demand a considerably higher price for a product that they own than they would pay for it. This study explores the endowment effect to the issue of replacing a broken item versus buying the item for the first time in the context of buying with cash or credit in an extension of Fagerstrom and Hantula (2013). Participants completed delay-discounting purchase decisions for an iPad and formal shoes. Some were replacing a broken item (endowment effect) and others were buying it new. Participants replacing a broken item exhibited significantly steeper discounting rates than those buying it new, indicating that willingness to purchase the items on credit at higher interest rates increased as weeks to save to buy the item using cash increased. This provides further evidence that contextual factor such as the endowment effect influence credit consumption, perhaps as a motivating operation |
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