Why are people more likely to overspend when they do not pay with cash?

• A. Non-cash payments always offer discounts, encouraging consumers to buy more.
• B. Paying with non-cash methods reduces the immediate psychological impact of spending, making consumers less aware of the cost.
• C. Consumers receive more consumer surplus when they pay with cash compared to credit or debit.
• D. Cash payments are required for all luxury goods, so people spend less on necessities.

Answer: (B)

Verified step by step guidance

1. Understand the concept of 'psychological impact of spending' in consumer behavior, which refers to how the method of payment affects a consumer's perception of the cost incurred.
2. Recognize that paying with cash involves a tangible exchange of money, which creates a stronger immediate awareness of spending and can act as a natural spending restraint.
3. Contrast this with non-cash payments (such as credit or debit cards), where the payment is less visible and immediate, reducing the psychological 'pain' of paying and making consumers less sensitive to the cost.
4. Analyze how this reduced sensitivity can lead to higher spending because consumers do not feel the loss of money as acutely when using non-cash methods.
5. Conclude that the key reason people are more likely to overspend with non-cash payments is the diminished immediate psychological impact, not because of discounts, consumer surplus differences, or payment requirements for luxury goods.