Neuroscience
Given their high interest rates, why do so many people continue to borrow money on credit cards? According to Sha Yang and colleagues, part of the answer has to do with people being unrealistically optimistic about paying off their balance each month.
Two hundred and seventy-one credit card users were surveyed repeatedly about the cards they used, their intention to pay off their monthly balances, and what their actual credit balances were.
From a pragmatic perspective, people who allow debt to accumulate on a card would be better off using a card with a cheap interest rate, even if the annual fee were large. However, the researchers found that people who said they intended to pay off their balance, but didn't, were more likely to use cards with higher interest rates, and less likely to use cards with a higher (one-off) annual fee.
The researchers said: “These findings show that people who are more subject to unrealistic optimism will be more prone to select cards that do not serve their interests”.
A second study involved 75 participants who made hypothetical choices between rival credit cards and also completed a questionnaire that revealed their propensity for wishful thinking. Consistent with the first study, people prone to wishful thinking were less bothered by a high interest rate, but more concerned with a avoiding a higher annual fee.
“We show that unrealistic optimism may be one of the psychological explanations underlying why some consumers prefer credit cards with features that are not in their best interest, which has long been a puzzle for both researchers and credit card marketers”, the researchers said, adding that public policy may be needed to protect such people.
_________________________________
Yang, S., Markoczy, L. & Qi, M. (2007). Unrealistic optimism in consumer credit card adoption. Journal of Economic Psychology, 28, 170-185.
Post written by Christian Jarrett (@psych_writer) for the BPS Research Digest.
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Neuroscience
Is unrealistic optimism leading you to pick the wrong credit card?
Given their high interest rates, why do so many people continue to borrow money on credit cards? According to Sha Yang and colleagues, part of the answer has to do with people being unrealistically optimistic about paying off their balance each month.Two hundred and seventy-one credit card users were surveyed repeatedly about the cards they used, their intention to pay off their monthly balances, and what their actual credit balances were.
From a pragmatic perspective, people who allow debt to accumulate on a card would be better off using a card with a cheap interest rate, even if the annual fee were large. However, the researchers found that people who said they intended to pay off their balance, but didn't, were more likely to use cards with higher interest rates, and less likely to use cards with a higher (one-off) annual fee.
The researchers said: “These findings show that people who are more subject to unrealistic optimism will be more prone to select cards that do not serve their interests”.
A second study involved 75 participants who made hypothetical choices between rival credit cards and also completed a questionnaire that revealed their propensity for wishful thinking. Consistent with the first study, people prone to wishful thinking were less bothered by a high interest rate, but more concerned with a avoiding a higher annual fee.
“We show that unrealistic optimism may be one of the psychological explanations underlying why some consumers prefer credit cards with features that are not in their best interest, which has long been a puzzle for both researchers and credit card marketers”, the researchers said, adding that public policy may be needed to protect such people.
_________________________________
Yang, S., Markoczy, L. & Qi, M. (2007). Unrealistic optimism in consumer credit card adoption. Journal of Economic Psychology, 28, 170-185.
Post written by Christian Jarrett (@psych_writer) for the BPS Research Digest.
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Most of the time, when a magician asks you to "pick a card" she makes it feel as though you have a free choice, but you don't really. The authors of a new paper say this is a microcosm for many real-life situations in which we feel free to choose,...
- The New Psychology Of Everyday Playing Cards
Aces are easier to see and remember than other cardsPlaying cards, used for games and magic, are so familiar, yet we know remarkably little about the way we perceive and think about them. Are some cards more memorable than others? Are some easier to identify?...
- How A Psychological Bias Leads Many People To Pay More Credit Card Interest
New financial rules in the U.K. and elsewhere mean that credit card companies have to take a monthly minimum payment from card-holders who have an outstanding balance. It's a protective measure that's intended to stop card-holders' debt from...
- Ouch, That's Expensive!
As well as hurting your wallet, your brain expects an expensive product to cause you pain too. Researchers have found that in terms of brain activity, whether or not we choose to make a purchase is reflected in a trade-off between regions of the brain...
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from the BPL Online Registration and eCard FAQ : Can I register for a library card online? yes!! For a limited time, Massachusetts State Residents can sign up for a temporary (6 month) Boston Public Library eCard via the web! What is an "eCard"? BPL...