Denomination Choice: An Investigation of How Price Information Affects Spending Behaviour
(A2019-9947)

AUTHORS

Jeremiah Iyamabo, IESE Business School; Elena Reutskaja, IESE Business School; Priya Raghubir, New York University; Íñigo Gallo, IESE Business School

KEYWORDS

Denominations; Price; Subjective value of money

ABSTRACT

We investigate whether consumer choice of which denomination to purchase with, which product to buy (more expensive or cheaper) and which means of payment to use (credit card or cash) is influenced not only by the denominations at hand but also by the price information they encounter. Across five studies (n > 1900), we find that consumers violate the descriptive invariance principle by consistently choosing to purchase with denominations that (closely) match a certain price. We further show that matching of lager denominations consumers possess and product prices results in consumers purchasing a more expensive product than when the denominations and prices are low. We also show that consumers choose to use cash over credit card when denomination at hand matches the price of the product and reverse the preference for credit card over cash when there is no match between price and denomination people hold.