To combat overspending, many personal finance experts recommend paying for stuff with cash. The consumption is more direct with cash; you feel it more. And it works, according to
research from MIT. Researchers found that subjects were willing to spend twice as much on something when they paid with a credit card compared to paying with cash. Other researchers
call it coupling: the degree to which paying is linked to consumption. Credit cards weaken coupling; cash tightens it.
But psychologist Hal E. Hershfield brings up an interesting point about this phenomenon. The flip side of coupling is that we’re also less likely to enjoy our purchase when we’re closely linked to it. It’s more painful. The awareness of dropping $150 cash for a hotel can take away from the fun of traveling, for example. So Hershfield offers a solution:
If you want to derive more enjoyment out of what you consume (think about going on vacation but being stressed about how much various things cost) then pay for the experience in advance. Doing so decouples the pain of paying from the consumption of the experience. Prelec and Loewenstein, in fact, mention a concept known as
prospective accounting, in which consuming something that has already been paid for can be enjoyed as if it was free. This is akin to prepaying for a hotel room, and then having the pleasant feeling that the room was free upon receipt of the zero-balance bill.