The Denomination Effect

Priya Raghubir and Joydeep Srivastava

Journal of Consumer Research, 2009, vol. 36, issue 4, 701-713

Abstract: Labeled the "denomination effect," study 1 shows in three field studies that the likelihood of spending is lower when an equivalent sum of money is represented by a single large denomination (e.g., one $20 bill) relative to many smaller denominations (e.g., 20 $1 bills). In two of the three field studies, individuals spent more once the decision to spend had been made. Study 2 then shows that consumers deliberately choose to receive money in a large denomination relative to small denominations when there is a need to exert self-control in spending. Study 3 further shows that the denomination effect is contingent on individual differences in people's desire to reduce the pain of paying associated with spending. The results suggest that the denomination effect occurs because large denominations are psychologically less fungible than smaller ones, allowing them to be used as a strategic device to control and regulate spending. (c) 2009 by JOURNAL OF CONSUMER RESEARCH, Inc..

Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:oup:jconrs:v:36:y:2009:i:4:p:701-713

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