Would you break a $50 bill for a bag of chips and soda? Probably not. But a $5 bill? Sure.
That's what researchers have dubbed the "Domination Effect." Priya Raghubir and Joydeep Srivastava conducted field studies in the U.S. and China that revealed that people were comfortable spending a small denomination bill, but would hold on to a larger bill.
One experiment the team conducted studied people at a convenience store. Those who filled out a survey about gas usage were rewarded with either a $5 bill, five $1 bills or five $1 coins. After people came out of the store, Raghubir asked them for their receipts. The ones with the coins spent the most, while the ones with the $5 bill tended to hold on to it.
The economist did three studies, published in the April issue of the Journal of Consumer Research, and found that people were likely to hold on to a large bill; people choose to receive money in large bills rather than small to control spending; and that some individuals try to control the pain associated with spending by holding on to large bills.
According to Raghubir, "[Those that feel the pain of spending more] fear that once they break the bill, they'll be unable to stop spending the money, and all the money will go away," quoted in The Oregonian. "Spendthrifts don't have that fear at all. They don't have the pain associated with spending money."
To control spending finance writer Brent Hunsberger, of The Oregonian, writes that "If you want to spend less, carry cash instead of credit cards. If you're a spendthrift, you might even want to carry larger bills."
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