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Why paying for things upfront will cause you less 'pain', according to a behavioural scientist

Fraser Moore
Why paying for things upfront will cause you less 'pain', according to a behavioural scientist
  • Business Insider spoke to Dan Ariely, James B. Duke professor of behavioural economics at Duke University, and author of "Small Change". 
  • Ariely said it's better to pay for your holiday upfront instead of after or during.
  • He says this will offset the psychological "pain of paying".


Read the full transcript below:

Dan Ariely: One of the interesting things about money is that it matters when we pay. So imagine you’re going on vacation, and you can pay upfront, you can pay during the vacation or you can pay at the end. It turns out that those things matter not just financially, they also change our enjoyment from the vacation.

So what happens when you pay upfront? When you pay upfront, you start the vacation, you’ve paid for the whole thing, and now you don’t think about money and that’s a great way to experience it.

What happens when you pay at the end? Well, in the beginning you don’t think much about money but toward the end of it you think about money and you get slightly worried about the vacation.

But the worst is to pay all throughout. Why? Because every time you worry about that money. You worry about it, You worry about it, You worry about it - the whole quality of the experience goes down.

This is what is called the “pain of paying”. This term basically says that when we part with our money, it’s not just parting with our money, there’s psychological pain of parting with our money. There are some brain imaging studies that show there is something like physical pain when we do that.

Now how do we eliminate that agony? One easy way is to spend other people’s money. If you find some money on the street you don’t feel the same agony. Another one is to think about vouchers.

Imagine I give you $10,000 good for Amazon for 10 years. What would happen? You would spend it much faster. Why? because you say: “This money belongs to Amazon, let me just spend it.” But of course life is not just about getting things cheap it’s also about enjoying things.

And the interesting thing about the pain of paying is it changes how much we enjoy something. So when we think about life in general, you might say: “Let me think about some pain of paying, let me feel some of the pain of paying because if I would, I would not make foolish financial decisions.”

But when you go on vacation, it’s not about being rational and reasonable, it’s about celebrating the few weeks in the year we have off. So, try to pay in advance and don’t feel the pain of paying as you go through your vacation.

Produced by Fraser Moore. Camera by David Ibekwe. Research by Fraser Moore and David Ibekwe.

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