Short-term Decision Making

The problem with credit cards is that they take advantage of a dangerous flaw built into the brain. This failing is rooted in our emotions, which tend to overvalue immediate gains (like a new pair of shoes) at the cost of future expenses (high interest rates). Our feelings are thrilled by the prospect of an immediate reward, but they can't really grapple with the long-term fiscal consequences of that decision.

Paying with plastic fundamentally changes the way we spend money, altering the calculus of our financial decisions. When you buy something with cash, the purchase involves an actual loss-your wallet is literally lighter. Credit cards, however, make the transaction abstract, so that you don't really feel the downside of spending money. Brain-imaging experiments suggest that paying with credit cards actually reduces activity in the insula, a brain region associated with negative feelings.

Jonah Lehrer
How We Decide

Let's Make a Deal

Would you rather have $74 in three days or $115 in three months?

That’s the question UK researchers put to more than 40,000 participants through a BBC website. They wanted to know if a person's tendancy to spend or save comes from their understanding of financies or if it the decision reflects the person's overall personality.

Almost half of those responding preferred getting quick cash. This impulsive group turned down an interest rate hundreds of times higher than what they could get from normal investments. The people showing this a desire for immediate gratification was also more likely to indulge in other impulsive behaviors.. like overeating, smoking and even infidelity. The financial impulsivity was a common theme running through their lives.

The study was conducted by University College London and the University of Warwick. You'll find details in the journal Personality and Individual Differences. (The question was actually given in pounds instead of dollars. So the choice was 45 or 70 pounds).

Stephen Goforth