Entry 006 - Cash or Credit?

Today's entry examines a question which arose in a conversation with Aimee Hokanson and Bethany Spring, regarding spending behavior. Simply put, the question, which was not specifically addressed to the blog, but I found to be blog worth is:

"Does the payment mode (using cash, credit, or debit cards) impact the amount spent?"

While some people claim that the answer to this question is well established and boarders on common knowledge, I was actually surprised to see very little research. Although it is unclear why people feel that the answer to this question is common knowledge, it seems likely to a variety of misinformation posted on the internet may be the cause.

For example, one commonly cited study, among bloggers to financial gurus such as David Ramsey, favors the notion that people spend more when using credit cards. According to these sources, a study was conducted by Dunn and Bradstreet, who found that people, on average, spend 12-18% more when making credit card purchases, compared to using cash. Additionally, they are reported to have discovered that the average McDonalds transaction increased from $4.50 to $7.00, upon the company's acceptance of credit cards as a viable payment option. However, to date, I have been unable to find this report, and have viewed some sources which claim that even Dunn and Bradstreet are unaware of the validity these figures.

Remember, Ronald "loves to see you smile".

So, if this study is not valid (or worse yet, does not exist), why do a variety of individuals constantly cite it? Well, the citation could be erroneously propelled by credit card corporations. After all, if you are in charge of a business, why would you opt for a payment method which requires time, equipment, and money to process? According to Flagship Merchant Services, gateway, statement, and monthly fees for processing transactions could be anywhere from $25 - $45 a month (and those are the "best" processing fees). Add this with the notion that your credit card may be lost, or stolen, which could end up costing the consumer more than they bargained for, and there seems to be little reason to accept credit or debit cards.

"And how will you be paying Mr. Flanders?"

Regardless of where this misleading information came from, I have decided to stick with books, peer reviewed studies, and dissertations which I was able to access, in order to seek out the correct answer.

ARGUMENTS FOR AND AGAINST:

Regardless of which mode of payment you feel is most likely to prompt spending, there are logical and possibly valid arguments supporting either view. For example, those who feel that someone who has cash on them is likely to spend more will often argue that the person in question withdrew that money and has it on them, so that they could spend it. Essentially, the decision to spend that money was made as soon as they withdrew it from the bank. Additionally, people who favor this view may argue that the money is "burning a hole" in one's pocket, begging to be spent at the first available moment.

Money is the root of all evil!

Alternatively, others claim that using credit cards is more likely to prompt spending. Proponents of this view argue that that, in general, cards distance the consumer with the reality of monetary exchange. Additionally, credit cards are based upon exchanging money one does not have, for goods, with the promise that the money will be paid back. Thus, by a literal - and narrow - definition, people who use credit cards are spending more money than they have. The same argument would not hold true for debit cards, as that is an exchange from money which is available in one's bank, but debit cards may also be viewed as a form of distance.

I'm here to steal your soul!

EMPIRICAL DATA:

Retailers (Borgen, 1976; Huck, 1976), credit researchers (Hirschman, 1979), and popular writers (Galanoy, 1980; Merchants of Debt, 1977) generally argue that credit cards facilitate spending. However, it has been debated if this facilitation significantly exceeds that of cash. Given that the majority of data on this subject is correlational, it has been difficult to objectively determine whether or not credit cards actually prompt more spending.

Hand over your money or 

I will give you this credit card!

To date, the most comprehensive response to the question at hand was provided by Raghubir and Srivastava (2009), who conducted a series of studies attempting to ascertain whether or not payment mode makes a difference. In the first study, participants estimated how much they would spend using cash vs. credit cards for a restaurant meal. The results noted that people are willing to pay more when they use a credit card, versus cash. In a second experiment, researchers prompted participants to estimate food expenses for an imaginary Thanksgiving dinner, item by item. When participants considered the cost, the cash-credit spending gap closed, suggesting that people who are confronted with the reality of expenses, no longer allow the mode to influence their decisions.

Collectively, the results from these studies indicate that people may spend more when using a credit card, due to the expense seeming less real. Raghubir and Srivastava conducted two additional studies which examined gift certificates. In the first gift card study, results suggested that participants spend more when using a gift card than cash. In a second study, participants were given $1 gift cards which could be used to buy candy. Participants were instructed to put a gift card in their wallet for an hour, which the researchers argued, made the value card seem more real. Results indicate that people participants put the gift cards in their wallets; they were less likely to use them.

While the question of using debit cards remains unaddressed, the experimental studies outlined provide sound evidence for the notion that credit cards prompt more spending. For some reason, the use of cards seems to be less transparent when considering monetary exchange.

TRANSPARENT TRANSPARENCY: A HISTORICAL APPROACH:

Having read the previously stated arguments, one may wonder why using a card is viewed as distancing the consumer from their money? After all, if these cards are little more than money, why should it make any difference as to its form? Although the aforementioned study provides some data as to the cause of credit cards facilitating spending, the answer remains somewhat elusive. Sources have suggested that while credit cards do prompt spending, there is no special aspect of credit cards which can be implicated for this cause (Federal Reserve System, 1968; Zipprodt, 1969). Thus, in order to fully understand the reasoning behind the theory proposed by Raghubir and Srivastava , a historical overview may be necessary.

According to historical data, the barter system was commonly used up to 100,000 years ago (Mauss, 1923). However, many cultures around the world soon developed the use of commodity money, as the barter system was limited to use between family and friends (Graeber, 2001). While money originally served as a medium of exchange, individuals were limited to the amount of wealth which they had gained to date.

Torg needed companionship, Gark needed food...

...what to do... what to do?

The concept of using a card for a purchase was first noted in 1887 by Edward Bellamy, author of Looking Backward (http://en.wikipedia.org/wiki/Looking_Backward). Bellamy used the term "credit card" eleven times throughout his novel. In the late 1920s, a variety of companies developed a device called the "Charge Plate", which was issued by large-scale merchants to their regular customers. Since the 1960s, credit card use has dramatically increased in the US (Duca & Whitesell, 1995), such that credit cards are now seen as a vital component of business, banking, and personal money management (Clark, 1975; Savage, 1970).

The reason that a historical approach may allow for additional insights is that, for most of the known economic history, money was used as the primary exchange. It stands to reason that given the explosion of technological advances that devices such as credit cards are likely to be viewed as positive and convenient. However, much of the technology which allows us to monitor credit is hard to obtain (try getting your credit report in five minutes), or at the very least, requires individuals to be proactive (banks may push for online banking to save paper, but also require you to login to monitor your finances). Essentially, the concept of a credit card is new, and it may not be highly associated to our personal finances in the same way that that money is.

CONCLUSION:

As credit cards become more common place, the cash to credit card gap may dissolve. However, until then, research suggests that you may be more likely to spend more when using a credit card. This may sound bad at face value; however, there is nothing inherently wrong with using a credit card. After all, where would the world economy be if entrepreneurs were not able to secure funding for their projects?

Well, for one, Trump would be broke.

If you ask me, a world with Donald Trump is a small price to pay for the convenience afforded to the general public thanks to credit cards. Credit cards require the user to be fiscally aware, and somewhat proactive with their finances, which, if you ask me, is not a bad thing. Although some individuals still end up over their head in debt, I would argue that this is the fault of an unregulated fiscal sector which felt it was too big to fail.

I guess we'll have to sell one of the kids.

On a final note, I will admit that the research presented here is not too conclusive. Additional studies are needed. After all, there could be some third variables which need to be controlled for to see whether or not the pattern would hold. For example, age, experience with credit, or even whether or not students in the study had money in their wallets in that fourth study could all influence the results. While some could argue that the difference may hinder on a variety of personality traits, or individual differences, it is important to approach the subject such that one determines if an effect exists or not. Once an effect is established, it would be useful to consider these others variables and how they may strength or reverse the observed relations.

NOTE: If you have a question for me to research and answer please submit it as a comment, or send it to ELKronos@aol.com / Facebook.com/ELKronos. Submit your name and location if you wish to opine.

CITATIONS:

Borgen, C. W. (1976). Learning Experiences in Retailing: Text and Cases, New York: Goodyear.

Clark, F. (1975). Bank Credit Cards: Attitudes and Decisions of Selected Retail Merchants in Arkansas and Missouri, unpublished dissertation, University of Arkansas, Department of Business Administration, Fayetteville, AR 72701.

Duca, J.V., & Whitesell, W.C. (1995). Credit Cards and Money Demand: A Cross-sectional Study. Journal of money, credit and banking, 27, 604-623.

Federal Reserve System (1968), Bank Credit Card and Check Credit Plans, Publication Services, Division of Administrative Services, Board of Governors, Washington, D.C. 20551.

Galanoy, T. (1980). Charge It: Inside the Credit Card Conspiracy, New York: G.P. Putnam Sons.

Graeber, D. (2001). Toward an Anthropological Theory of Value, 153-154.

Hirschman, E. (1979). Differences in Consumer Purchase Behavior of Credit Card Payment System. Journal of Consumer Research, 6, 58-66.

Huck, L. (1976). Making the Credit Card the Customer. Banking, 68, 37, 80, and 83.

Mauss, M. (1923). The Gift: The Form and Reason for Exchange in Archaic Societies. 36-37.

Merchants of Debt (1977). Time Magazine, 109, 36-40.

Raghubir, P., & Srivastava, J. (2008). Monopoly money: The effect of payment coupling and form on spending behavior. Journal of experimental psychology: Applied, 14, 213-225.

Savage, J. (1970). Bank Credit Cards: Their Impact on Retailers. Banking, 63 (1), 39, 92.

Zipprodt, C. (1969). Bank Charge Cards-An Evaluation. The Journal of Consumer Credit Management, 1, 10-19.

Entry 005 - Which came first, the chicken or the egg? In that sentence, the chicken.

This entry is devoted to a question posed by Calvin Libby and Adam Murray, from Maine, who want to know:

"What came first, the chicken or the egg?"

Although the question has been debated for centuries, I have attempted to understand what the question truly means, and provide various responses that have emerged throughout history.

QUESTIONING THE QUESTION:

In its most basic form, the question posed by Calvin and Adam is a causality dilemma. Although the question seems amusing at surface value, it helped evoke fundamental questions about the existence and the universe (Theosophy, 1939). The question is not necessarily meant to be directly answered, but has a deep metaphorical meaning which begs the listener to consider, "Whit came first, X that cannot exist without the presence of Y, or Y that cannot exist without the presence of X?" Essentially, this is a philosophical circular reference, where the last object references the first, creating a closed loop.

"You jest about what you suppose to be a triviality, in asking whether the hen came first from an egg or the egg from a hen, but the point should be regarded as one of importance, one worthy of discussion, and careful discussion at that." 

- Macrobius

Although the question was not meant to be definitively answered, many individuals, or groups of people, have attempted to do so throughout history. Given the wide array of responses formulated by this question, I have decided to tackle the question by first acknowledging what all of the viewpoints claim. I will start with the first view point which founded the question, and then move on to a variety of other answers which have been posed over time.

PHILOSOPHICAL POINT OF VIEW:

The origins of the question can be dated back to 300BC, where great minds such as those of Plato and Aristotle devoted much time and alcohol to answering such quandaries. To Plato, ideas were independent of the natural world. For Plato, the idea of the chicken came before both the chicken and the egg. After all, a chicken is defined by its characteristics, and if there is no known entity which encompasses that which is considered to be "chicken", it is irrelevant as to whether or not the egg or chicken existed first. In essence, a quality of "chickeness" must have existed first.

You're going down!

Aristotle disagreed with his teacher, no doubt stemming from a sign of Ancient Greek teen angst and rebellion. Aristotle argued that while a chicken is in someway immutable, the idea of a chicken is a concept which will be based on the number of experiences on has with a chicken. The chicken exists as the result of experience, which will tell us what characteristics the chicken has (Ross, 1953). Aristotle did not believe that there was some immutable mold of a chicken, but rather the form itself was within the chicken.

"If there has been a first man he must have been born without father or mother -- which is repugnant to nature. For there could not have been a first egg to give a beginning to birds, or there should have been a first bird which gave a beginning to eggs; for a bird comes from an egg." 

- Aristotle, (Isis Unveiled I, 428.)

This argument becomes important to the philosophy of Aristotle, as he would argue that every chicken's egg has the potential to become a chicken, and while not all eggs reach this potential (some end up in a frying pan), eggs are not able to alter their potential (a chicken egg cannot birth a kitten, no matter how hard it tries). Given this line of logic, Aristotle argues that the chicken comes before the egg. He states that an object can only be a potential something, if there is already an actual something for that object to become. This argument asserts that the chicken must already exist in actuality, in order for the eggs potential to be reached. There can be no chicken eggs until the species of the chicken has been named.

Or could a chicken egg hatch a cat?

ISSUES WITH PHILOSOPHICAL CLAIMS:

Admittedly, the philosophical point of view may be seen as unsatisfactory to some. After all, if eggs containing chickens existed first, but no one knew what to call them until they gained enough experience with chickens, it would imply that the basis for scientific labeling is limited to human awareness. This is problematic because there are many creatures which existed, and perhaps still exist today, without humans discovering them. Labeling the creation of something by human perception implies that humans have created the being, as opposed to discovering them. As a result, this point of view may be little more than shallow argument over the label of existence (e.g. can something exist if we do not know it exists).

When did we get so technical?

RELIGIOUS POINT OF VIEW:

Depending on the religion, there could be differing beliefs about whether the chicken or egg came first. According to Judeo-Christian belief systems, God created birds along with the universe.

"[19] And the evening and the morning were the fourth day. [20] And God said, Let the waters bring forth abundantly the moving creature that hath life, and fowl that may fly above the earth in the open firmament of heaven. [21] And God created great whales, and every living creature that moveth, which the waters brought forth abundantly, after their kind, and every winged fowl after his kind: and God saw that it was good. [22] And God blessed them, saying, Be fruitful, and multiply, and fill the waters in the seas, and let fowl multiply in the earth."   

- Genesis, 1:19-22

A literal interpretation of this creation story would imply that the chicken came first, as God was said to have created birds, and commanded them to multiply. This response is unique compared to the other point of views as it is perhaps the only response which directly attempts to solve the riddle. While philosophical and scientific point of views have some doubt, this response maneuvers around the circular reference given God's omnipotence. However, it should be noted that many people of the Judeo-Christian belief system do not insist on a literal interpretation, but may be likely to view the answer to such a question through the lenses of intelligent design. Strictly speaking, those who believe in intelligent design would insist that the chicken did not evolve through natural selection, but rather, an intelligent entity prompted the creation of the modern chicken.

And on the 7th day, God created KFC, and it was good.

While the Judeo-Christian belief system may provide a clear cut answer for some, other religions, such as Buddhism, provide different response. Buddhists believe in a cyclical view of time (Newman, 1987; Bryant, 1995), which implies that there is no "first" cycle. Essentially, there is no creation as the cycle is ever repeating. This response is similar to other belief systems established by Mesoamerican cultures (Coe, 1992; Miller & Taube, 1993), and even observed in the philosophical writings of Nietzsche (Golan, 2007).

Although popular in some sects, the Wheel of Time

was no match for the Wheel of Fortune.

ISSUES WITH RELIGIOUS CLAIMS:

Consequently, the reason some individuals may take issue with a purely religious point of view is that it requires a leap of faith. Religion poses many theories which cannot, currently, be empirically tested. As a result, people of faith are left to interpret how they choose to answer the question based off of the information they seek, and whether or not they presume it is meant to be literal. This could be considered problematic when attempting to reach a finalized conclusion, as people have the tendency to seek out information that confirms their beliefs, while ignoring information that discredits it (Watson, 1968). Given the empirical gaps present in religion, some people find themselves to be more satisfied with a scientific point of view.

SCIENTIFIC POINT OF VIEW:

Perhaps the most significant contribution of science, in regard to the question of which came first, the chicken or the egg, was the theory of evolution. The theory of evolution, proposed by Charles Darwin, suggests that species change over time due to mutations and natural selection (Darwin, 1859). Given that DNA cannot be naturally mutated during an animal’s life time, the mutation to make a modern chicken occurred within the egg, implying that an animal similar to a chicken, but not a chicken as we know it, laid the first chicken egg (CNN, 2006). This theory has been supported by modern philosophers who state that the eggs precedence of the chicken is not just a logical point of view, but a biological necessity (Sorsen, 1992).

Jerry couldn't believe his wife had someone else's baby.

However, even science is at ends when it comes to a definitive answer. For example, a recent study by Freeman et. al. (2010), provides evidence which some claim suggests that the chicken must have preceded the egg. In Freeman's study, scientists found a protein which is only found in a chicken's ovaries, which is necessary for the formation of the egg. Without this protein, the development of the hard shell would be too slow, leaving the yolk unprotected.

Researchers have claimed that the egg can therefore only exist if it has been created inside a chicken. This scientific finding also has philosophical support, such that some philosophers have argued that female animals are the sole authors of their eggs, implying that a chicken cannot be laid by a non-chicken, suggesting that chickens must have come first (Waller, 1998).

ISSUES WITH SCIENTIFIC CLAIMS:

The largest issue with scientific evidence is that it could be interpreted in a variety of different ways. The basis of science is that of objectivity, which leaves little room for the currently un-testable theories proposed by religion, let alone the seemingly pedantic discrepancies argued about by philosophers. The fact of the matter is that short of inventing a time machine, there seems to be little that science can do to actually provide absolute proof. As noted, scientific evidence has been noted by both sides. Thus, it is up to the casual observer to weigh the evidence on their own, and make the most informed decision possible.

CAN I GET AN OPERATIONAL DEFINITION OVER HERE:

The reason that this question is so hard to address logically or even empirically, is that a universal operational definition is lacking. From a philosophical standpoint, vague theorists would argue over what a chicken is (Sanford, 1975). Evolution theorists might claim that a creature similar to a chicken gave birth to the chicken, but the question quickly becomes what exactly do we consider to be a chicken? If prehistoric chickens are excluded, at what point do we call an animal a chicken?

Finally proof that dinosaurs were made of chicken!

Similarly, what is a chicken egg? Some individuals may argue that a chicken egg is any egg laid by a chicken, regardless of what comes out; however, others argue that a chicken egg is any egg which gives life to a chicken, regardless of what laid it. Additionally, one could even adopt the macro-perspective that prehistoric eggs did exist, which gave life to what would become a chicken. From this literal standpoint, "eggs" have been around for millions (or pending your belief system, thousands) of years before any creature which resembles a chicken.

CONCLUSION:

Given all the claims regarding which came first, it seems almost absurd to expect a definitive answer any time soon. It appears that as soon as an answer is put forth, more questions arise. However, regardless of your point of view, it stands to reason that the true answer to this age old riddle will most likely come from an integration of these sources, and perhaps even some that are currently unknown to society.

C.W. Mills, most famous for his book entitled "The Sociological Imagination" (1959), provided a unique theory about belief systems which is likely to put these responses into the appropriate context. Mills pointed out that questions are answered by the belief system which is held by a society at any given time. For example, initially, a rainbow was thought to be derived from magic; however, as Christianity spread, people asserted that the rainbow was God's promise to the human race that he would not flood the world again. Yet, in the modern era, early scientists have found empirical evidence suggesting that a rainbow is nothing more than an optical and meteorological phenomenon that causes a spectrum of light to appear in the sky when the Sun shines on to droplets of moisture. As a society progresses, new ways for questions to be answered could arise (perhaps even a methodology better than 'science'). All we can do is approach these questions with an open mind, and consider the validity of the arguments at hand.

Who "came" first?

Although I am tempted to end this blog with a "I'll let you decide" response, I do not think this will satisfy Calvin or Adam. Based on all of the evidence I have provided, I will say that I am leaning toward the chicken as coming first. Given the scientific evidence noted above, and Aristotle and Platos arguments (e.g. if we have never seen a chicken, we cannot label something as a chicken egg, it is our experience with the animals which lead us to successfully classify its eggs), claiming the chicken came first just seems more reasonable. However, I welcome you to disagree, and provide your own explanation as to why.

NOTE: If you have a question for me to research and answer please submit it as a comment, or send it to ELKronos@aol.com / Facebook.com/ELKronos. Submit your name and location if you wish to opine.

CITATIONS:

Aristotle's Metaphysics. W.D. Ross. 2 vols. Oxford: Clarendon Press, 1924. Reprinted 1953 with corrections.

Bryant, B., (1995). The Wheel of Time Sand Mandala, Snow Lion Publications.

Coe, M.D., (1992). Breaking the Maya Code. London: Thames & Hudson.

CNN (May 26, 2006). "Chicken and egg debate unscrambled". CNN.com. Retrieved 2011-07-09.

Darwin, C. (1895;1979). The Origin of Species. Random House Value Publishing, New York NY.

Freeman, C.L., Harding, J.H., Quigley, P., Rodger, M. (2010). Structural control of crystal nuclei by an eggshell protien. Angewandte Chemie International, 49, 5135-5137.

Miller, M., & Taube, K. (1993). The Gods and Symbols of Ancient Mexico and the Maya: An Illustrated Dictionary of Mesoamerican Religion. London: Thames and Hudson.

Mills, C. W. The Sociological Imagination (Oxford: Oxford University Press, 1959), 5, 7.

Newman, J.R., (1987). The Outer Wheel of Time: Vajrayana Buddhist cosmology in the Kalacakra tantra, dissertation.

Sanford, D., (1975) Infinity and Vagueness. Philosophical Review, 84, pp. 520-535.

Sorsen, R.A. (1992). The egg came before the chicken. Mind, 101, 541-542.

The New Jerusalem Bible. Henry Wansbrough, gen. ed. New York: Doubleday, 1985. Print.

Theosophy (September 1939). "Ancient Landmarks: Plato and Aristotle". Theosophy 27 (11): 483–491.

Waller, D. (1998). The chicken and her egg. Mind, 107, 851-854.

Wason, P.C. (1968). Reasoning about a rule. Quarterly Journal of Experimental Psychology, 20, 273–280.