thing. But in another case – one angry face in a crowd of happy people – the salient thing is not that the angry face is the exception (we don’t tend to notice one happy face in a crowd of angry people) it’s that our minds are attuned to notice anger in particular. We do that because anger can spell danger for us. In the case of money, what is particularly salient is the big number. We’ve been taught since childhood to equate big numbers with more money. So – using the old Italian lira as an example again – when I visited Rome in the mid-1990s and a glass of prosecco was advertised as costing 10,000 lira, my immediate response was, ‘What?!’ The number in front of me dominated my thoughts. And only later, perhaps after I’d decided not to bother, did I work out that 10,000 lira was less than £3, which was reasonable enough for a glass of fizzy wine at a café in a sunny piazza.
Back among the Eurozone countries, there was another difficulty for some people. In Austria, Portugal and Italy, half of those people questioned in polls said the change was still causing them problems a year later.25 And what they were struggling with was what’s known as the accordion effect – that two prices in euros were harder to compare than two prices in their old currencies, because in the new currency the numbers were much closer together.
Think about it: the difference between one and two euros doesn’t seem that big. But 20,000 lira seems a lot bigger than 10,000 lira. To revert to my example above (and this time imagine I’m Roman born and bred), the cost of a glass of prosecco expressed in euros not only seems cheaper than it was in lira, but having two glasses doesn’t seem so extravagant because doubling such a small number seems pretty trifling.
Something along these lines may have happened in another country that joined the single currency in 2002. Every September, the National Collection for Mentally Handicapped Persons would go door-to-door in the Netherlands asking for donations. In a study conducted in three villages in the September after the adoption of the euro, giving rose by 11 per cent.26 Income levels remained the same, and it’s unlikely that compassion had suddenly increased, so the probable explanation was the new currency.
It seems people simply weren’t prepared to put in the cognitive effort to calculate the exact amount in euros, which would equate to the amount they used to give in Dutch guilders. Instead they roughly estimated the sum, and fortunately for the charity this meant they rounded it up a bit. Incidentally, the next year donations to the charity rose again, but this time by 5 per cent. Perhaps people were getting better at their calculations.
Anyway, the picture is clear. The change to the euro messed up people’s ability to exert mind over money. Unhitched from the familiar moorings of their old currency, they were, temporarily at least, at sea with their new currency, rather in the way we all are when we use foreign money. In the great scheme of things it probably didn’t matter all that much. People were not so muddled as to go on wild spending sprees or demand massive pay hikes. The impacts were at the margins and in time people adapted. But even so, any change in the physical manifestation of money causes some psychological disruption.
I close this section by positing a possible strategy for coping with currency change. Be warned it involves being grumpy, so it might not appeal to all.
The basis for my idea is this: psychologists have demonstrated that when people are happy – immediately after they’ve watched a video of penguins slip-sliding on the ice, for example – they are better at generating creative answers, but they are less good at mental arithmetic or tasks needing thorough processing.27 Recalling this research left me wondering whether those who were strongly opposed to the introduction of the euro (Jean-Marie Le Pen, for instance) might have had an advantage over jubilant federalists who welcomed monetary union.
The reason is obvious when you think about it. Jean and his Eurosceptic friends would have experienced a dampening of mood every time they saw a price label expressed in their new and unwanted currency. But there was an upside. Their grumpiness could allow them to make more precise calculations about prices.
Of course you may have noticed that there is a problem with the application of this stratagem. When do you need to be able to do currency conversions most often? Probably when you’re on holiday. So to avoid getting ripped off abroad you might need to go to places you loathe to ensure that you’re miserable. Perhaps this isn’t going to work . . .
CASH OR CARD?
So far we’ve been considering how our minds deal with changes to coins, banknotes or types of currency. But money has changed in a more fundamental way in recent years, away from physical forms of any kind.
In your wallet it is likely you’re carrying coins and banknotes, credit cards and debit cards, electronic travel cards and vouchers, as well as points on loyalty cards. But if I asked you how much money you have on you right now you’d probably only include the amount you had in cash.
We treat cash, cards and vouchers separately, so we don’t tend to calculate their combined spending power. In some instances that is logical. Try going into a pub and buying a round with a combination of a supermarket loyalty card and some book tokens and you’d get short shrift. Yet increasingly we pay for drinks – or even a drink – with debit or credit cards.
It’s convenient, but is it money-wise? Perhaps not. Only a couple of decades ago, the limit on your spending in a bar in one evening was the cash you had with you. Even if the bar staff had accepted it, you wouldn’t have got out your cheque book to pay for ‘one for the road’. These days the boundary between everyday money and all the money you have (in your current account at least) is increasingly blurred.
I know some people who feel that for a small purchase such as a sandwich you should always use cash. Debit cards are for bigger purchases and credit cards for luxuries and holidays. It’s a way of exerting self-control over money. It doesn’t seem right to borrow from a bank to buy a cheese-and-pickle sandwich with a credit card, if you can avoid it.
This might sound rather quaint and fastidious, but recent research suggests it’s a sound mental strategy. Researchers in the United States monitored the food shopping of 1,000 households for 6 months.28 Controlling for all sorts of factors, the researchers found that when people were paying by credit or debit card, they tended to make more impulsive purchases of unhealthy foods like cakes or chocolate. It seems our propensity to indulge in guilty pleasures increases when we don’t have to hand over ‘real’ money. So going ‘contactless’ might expand our waistlines as well as slimming down our bank accounts.
Of course it is not in the least surprising that we tend to use a card when the price is higher. It means we don’t have to carry around large sums in cash, and – in the case of a credit card – allows us to spend money we don’t actually have yet. But there’s more to it than that.
When we use a card we are not only more likely to decide to go ahead with a purchase, but our thinking changes. We are less likely to remember the amount we paid,29 and more likely to add a bigger tip. And as this next experiment shows, we are even prepared to spend more on the same goods.
At 1pm on Sunday 19 April 1999, the Boston Celtics began their last basketball game of the season against the Miami Heat. The match was crucial. If the Celtics were to take the division title, they needed a win. Celtics games always sold out well in advance, but MBA students at the world-famous Massachusetts Institute of Technology (MIT) in Boston were offered the chance to get their hands on a pair of tickets just the week before the game by taking part in a psychology experiment.
Psychologists who set up such experiments are notorious for their use of subterfuge, but in this instance the tickets were genuine and one lucky participant really would get to see the game with a friend. Not for free, mind. This was not a giveaway exercise. The winner would have to pay the face value of the tickets. And here’s where there was a bit of economy with the truth – the students didn’t know that. They were told they had to bid against others in a silent auction and believed that they could pay more than the standard ticket price if they chose to.
What the researchers wanted to know was the price students were prepared to pay for these precious tickets; and in particular, whether the form of payment would make any difference.
All