This Is Your Brain on Credit Cards

A new MIT study that asked participants to bid on NBA tickets with cash or credit found that credit card payers bid twice as high as the cash crowd. Why are we willing to spend so much more with plastic than paper?

Jonah Lehrer explains how shopping decisions are a tug-of-war between two parts of our brain. The nucleus accumbens (NAcc) goads us with sweet dopamine while the insula pushes back by secreting bitter feelings of aversion.

Here's the problem with credit cards: the insula doesn't seem to understand how they work. When we pay with plastic, the transaction is abstracted. Instead of forking over cash, we just swipe a thin card. As a result, the usual hurt of spending is diminished - we barely notice that we've given something up. (As the scientists note, "The nature of credit cards ensures that your brain is anaesthetized against the pain of payment."). Because spending money doesn't feel bad, we spend more money, even when we can't afford it.

Cell phones, of course, will make such retail transactions even more abstract. (At least credit cards are dedicated to payment.)

If credit cards "anaesthetize" against the pain of payment, just imagine what iPhones-as-wallets will do to American consumerism. Yeesh.

Read the full story at The Frontal Cortex.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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