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The Red, the Black, and the Plastic: Paying Down Credit Card Debt for Hotels, Not Sofas

Quispe-Torreblanca, Edika G.; Quispe-Torreblanca, Edika; Stewart, Neil; Gathergood, John; Loewenstein, George


Edika G. Quispe-Torreblanca

Edika Quispe-Torreblanca

Neil Stewart

George Loewenstein


Using transaction data from a sample of 1.8 million credit card accounts, we provide the first field test of a major prediction of Prelec and Loewenstein’s (1998) theory of mental accounting: that consumers will pay off expenditure on transient forms of consumption more quickly than expenditure on durables. According to the theory, this is because the pain of paying can be offset by the future anticipated pleasure of consumption only when money is spent on consumption that endures over time. Consistent with this prediction, we found that repayment of debt incurred for non-durable goods is an absolute 10% more likely than repayment of debt incurred for durable goods. The strength of this relationship is comparable to an increment in 15 percentage points in the credit card APR. Our results have managerial implications not only for the structuring of financial transactions (e.g., that credit card customers should be given the option of paying off specific purchases), but more general implications for exploiting variations in the pain of paying in incentive schemes aimed at customers and employees.


Quispe-Torreblanca, E. G., Quispe-Torreblanca, E., Stewart, N., Gathergood, J., & Loewenstein, G. (2019). The Red, the Black, and the Plastic: Paying Down Credit Card Debt for Hotels, Not Sofas. Management Science, 65(11), 5392-5410.

Journal Article Type Article
Acceptance Date Aug 11, 2018
Online Publication Date May 23, 2019
Publication Date May 23, 2019
Deposit Date Aug 14, 2018
Publicly Available Date Jun 4, 2019
Journal Management Science
Print ISSN 0025-1909
Electronic ISSN 1526-5501
Publisher INFORMS
Peer Reviewed Peer Reviewed
Volume 65
Issue 11
Pages 5392-5410
Public URL
Publisher URL


mnsc.2018.3195 (1.7 Mb)

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