011 min
The problem the pain of paying names
Picture a product manager at a video streaming service who must choose how to charge. One plan bills each film when it is watched. The other bills one flat amount at the start of the month. Suppose a viewer would pay the same total over a year on either plan.
The two plans still feel different. On the first, every film arrives with its own payment, and each payment raises a small question: is this one worth it? On the second, that question is asked once, on the day of signing up, and then the viewer watches without it.
The difference is not in the price. It is in what paying feels like. Standard economics treats a payment as plain subtraction: money leaves, a product arrives, and the only question is whether the trade is fair. Behavioral economists found that people act as if the subtraction itself hurts. That hurt is the pain of paying, and it changes what people buy, how much they enjoy it and how often they use it.
For a business, missing this has a concrete cost. A buyer who feels the hurt at the wrong moment may give up a product they wanted, use it less than they planned or cancel it. The rest of this article follows the streaming decision to see where the hurt comes from and what to do about it.
021 min
Where the pain of paying comes from
The idea has a traceable start. The term was coined in 1996 by Ofer Zellermayer, who developed it in a doctoral dissertation at Carnegie Mellon University under George Loewenstein. Two years later, Drazen Prelec and Loewenstein built a theory around it. In a 1998 paper in Marketing Science, Drazen Prelec and George Loewenstein proposed that the bad feeling people have when they consider or make a payment helps them control their spending.
That paper belongs to the study of mental accounting, the habit of sorting money into separate mental accounts for savings, debt and spending. A common explanation for the hurt is loss aversion: people weigh a loss more heavily than an equal gain, and handing over money is a loss.
The theory goes further than that. If the hurt helps people control their spending, then it should not be the same in every situation. It should depend on how the payment is made. That is the claim the rest of the research tests.
032 min
How the pain of paying works
Back at the streaming service, why would payment hurt on the per-film plan and not on the flat plan? The theory gives two answers. The first is how clearly the person feels the payment. The second is how closely the payment is tied to the thing bought.
A payment is coupled to a purchase when the two happen together, and decoupled when they are pulled apart, usually in time. A credit card that bills next month is a decoupled payment. The buyer gets the benefit now and the cost later, when the product is no longer on their mind.
| Plan | When money leaves | Payment and use |
|---|---|---|
| Pay per film | At every viewing | Coupled: each film brings its own payment |
| Flat monthly fee | Once, at the start of the month | Decoupled: a film adds no new payment |
The manager's hunch that flat billing will raise viewing is the prediction the theory makes. With no payment attached to each film, the viewer meets no reminder of cost while watching.
The pain also has a timing. It can arrive when the money is lost, which is the immediate pain, or earlier, when the buyer expects to lose it, which is the anticipated pain. A 2023 review in Psychology & Marketing separates the two. A seller who wants to lower the hurt has to ask which one the buyer feels.
042 min
What brain scans show about the pain of paying
A feeling is hard to test because it is private, so researchers looked at the brain instead. Brian Knutson, Scott Rick, Elliott Wimmer, Prelec and Loewenstein ran the best-known study in 2007.
In their 2007 study, volunteers received money and made real shopping decisions while lying in a brain scanner. On each trial, a person first saw a product, then its price, and then chose whether to buy it.
Two brain regions mattered. A product the person liked made the nucleus accumbens active, a region tied to expecting a gain. When a price looked excessive, the insula became active, and this happened before the person decided whether to buy. The insula is a region that is reliably active when a person is in distress. Both responses were linked to whether the person went on to buy.
Does the insula result prove the pain is real?
Not on its own. The authors explained the insula result with a hypothesis: that the region helps the brain predict a loss. A region that responds when someone expects a loss is not the same as a region that registers pain, and the insula responds in other situations too. Researchers have kept asking whether the pain of paying is a literal feeling or a convenient label for a response that can be measured.
For a product team the label still works. A price that looks too high produces a response that appears before people decline to buy.
052 min
How the way you pay changes the pain of paying
The brain result raised a practical question: does the way someone pays change how much a price hurts? Cash is the clearest case. The notes leave the buyer's hand, and the loss is easy to see. A credit card removes that sight and also delays the payment. In 2008, Raghubir and Srivastava reported that payment methods which remove cash less vividly, such as credit cards, lead people to spend more. Prelec and Simester's 2001 study of willingness to pay with credit cards pointed in the same direction.
This is the cashless effect: people spend more when they pay without cash. Mobile wallets go a step further. They remove the card and the receipt, which makes the payment even less visible. For the streaming service, the checkout screen matters as much as the price. A viewer who pays with a stored card sees less of the payment than a viewer who types in a number each time.
How big is the effect?
Smaller than the popular story suggests. In a 2024 meta-analysis of 392 effect sizes from 71 papers, Lachlan Schomburgk, Alex Bellib and Arvid Hoffmann found that people spend somewhat more with cashless payment than with cash, but the effect is small. The result varies a lot between studies, so a single experiment says little about your own customers.
Is the effect fading?
The same analysis found that the gap between cashless and cash spending has weakened over time. The authors report this as a general trend, not a rule for every payment method. If your customers have used cards and phones for years, the gap between paying with a card and paying with cash may be small for them.
062 min
The pain of paying in flat fees and subscriptions
The streaming service's flat plan has a well-known test case: gym memberships. Stefano DellaVigna and Ulrike Malmendier studied 7,752 members of three US health clubs over three years and compared what members chose with what they did.
Members who chose a flat monthly fee of over $70 attended 4.3 times per month on average, which put their cost per visit above $17, while a ten-visit pass would have cost $10 a visit.
A flat fee spreads one payment across all visits, so no single visit brings a charge. That fits the theory. But the data also show that members paid more than the pass would have cost them, and a business that offers a flat fee should ask why.
Is a flat fee proof of the pain of paying?
No. DellaVigna and Malmendier point to overconfident members who overestimate how often they will attend and how likely they are to cancel an automatically renewed contract. A member who expects to attend twice a week will choose the flat fee for that reason alone. A flat fee that wastes money does not, by itself, show that the pain of paying chose it. Both explanations can be true at once.
Why monthly plans keep members longer
Members on a monthly contract were 17 percent likelier than annual-contract members to remain a member after more than a year. The authors link this to the same overconfidence, now about how soon members will cancel. A small monthly charge is easy to leave in place, and a streaming plan renews in the same way.
Why a payment loses its effect over time
Harvard Business School professor John Gourville describes gym members as more likely to attend right after they have paid than later in their memberships. A payment that is fresh makes the use feel connected to the money spent. As the weeks pass, the payment fades from memory and the link weakens. This is close to sunk cost, where money already spent affects later choices, but here the effect weakens with time.
071 min
When the pain of paying is offset
The streaming manager has one more choice to make: when the money leaves. Paying in advance can hurt less than paying afterwards, but only in some cases.
Paying for something that lasts
In Prelec and Loewenstein's theory, a payment hurts less when the buyer expects pleasure from what it buys, but this works only when the thing bought lasts. A film watched once is a short pleasure, so pay-per-film leaves little to offset the payment. A monthly pass that gives weeks of viewing leaves more.
A 2019 study of credit card repayment by Quispe-Torreblanca, Stewart, Gathergood and Loewenstein tested this idea on card accounts. Its title gives the result: people paid down card debt for hotels, not sofas. The pleasure of a hotel stay ends quickly, so it offsets little of the payment.
081 min
Tightwads, spendthrifts and the pain of paying
Everyone does not feel the same pain at the same price. In 2008, Scott Rick, Cynthia Cryder and George Loewenstein described tightwads as people who feel too much pain when they consider spending, so they spend less than they would like. At the other end are spendthrifts, who feel too little pain and spend more than they would like. The researchers built a four-item scale to place people between the two.
Scores on the scale predict how much debt and savings a person has. For a seller, that means one price can reach two kinds of buyer. A tightwad may need a lower-pain design, such as a flat plan or a clear refund policy, before buying something they want. A spendthrift may need the opposite, because for them the pain is not holding spending back.
092 min
How sellers lower the pain of paying
Sellers have learned to lower the hurt in ways that match the theory. Each tactic does one of three things: it makes the payment less visible, it moves the payment away from the use, or it changes what the payment seems to be for.
- One-click checkout and stored cards remove steps between the buyer and the payment, so the loss is felt less.
- Bundling puts several items under one payment. The price of each item is no longer shown, which is why bundling and unbundling changes how a price feels. Unbundled fees do the opposite, because each fee is its own payment.
- Free trials and the zero price effect remove the payment for a while. The charge arrives later, when the buyer has already formed a habit.
- Framing the price as an investment or as access changes what the money seems to buy.
- Clear refund policies and free returns lower the cost of a wrong choice.
- Loyalty points let buyers pay in another currency that feels less like money.
- Small format changes, such as dropping the currency symbol from a price, make the number less prominent.
- Buy now, pay later is the extreme case of decoupling, and the reason it raises ethical questions.
The size of the hurt does not follow the price alone. Whether the money feels like an investment or like consumption, and whether the price feels fair, also matter. This is why two buyers can pay the same amount and feel different.
101 min
What the pain of paying means for your work
Back at the streaming service, each person on the team makes a decision that this concept changes.
- A product manager decides between pay per use and a flat plan. Pay per use is easier to justify to a careful buyer, but it puts a payment next to every film. A flat plan removes that, and may raise viewing.
- A designer decides where the price appears. A price shown early and clearly is felt before the buyer is invested. A price that appears only on the last screen is felt at the moment of commitment.
- An engineer decides how many steps the payment takes and what the receipt shows. Fewer steps lower the hurt. Hiding what was spent can lead buyers to underestimate their own spending.
- A founder decides about free trials, annual prepayment and refunds. Each moves the payment to a different moment in the buyer's experience.
None of these choices is neutral. Lowering the hurt for a buyer who would have bought anyway raises sales. Lowering it for a buyer who cannot afford the product costs that buyer money and may cost the seller a refund.
111 min
How to apply the pain of paying
Start by listing every moment in your product where money moves. A pricing page, a checkout step, a renewal email and a refund form are all payment moments, and each has its own level of hurt.
Find the moment of loss.
Note when the buyer first sees the amount and when it leaves their account. If those are far apart, the payment is decoupled.
Decide the aim.
If buyers drop out of a product they want, lower the hurt. If buyers overspend and then ask for refunds, raise it.
Change one thing and measure use.
Test a change in timing, such as monthly against annual billing, and watch what happens after the purchase: usage in the first month, cancellations after the first charge and refund requests.
Check who gains.
A change that raises sales while harming buyers who overspend is a bad trade.
Buyers can use the idea too. Setting a cash limit for a category you overspend on makes the loss visible again, because cash is the payment method that hurts most.
121 min
When the pain of paying breaks
The concept explains less than its popularity suggests. Three limits matter in practice.
- The average effect is small. The meta-analysis above found that card payment raises spending only a little on average.
- Pain is not proportional to price. A large payment that feels like an investment can hurt less than a small one that feels unfair.
- It can explain anything after the fact. If sales rise, the payment hurt less; if sales fall, it hurt more. A claim like that cannot be wrong. Use the concept to design a test, not to explain a result you have already seen.
The concept also does not cover purchases made for others. The same meta-analysis found that the gap between cashless and cash spending is stronger for showy purchases and weaker for purchases that benefit others.
131 min
The pain of paying vs. nearby concepts
Four ideas sit close to the pain of paying. Each one describes a different part of the same event.
| Concept | What it describes | What separates it |
|---|---|---|
| PsychologyCashless effect | ||
| PsychologyLoss aversion | ||
| PsychologyMental accounting | ||
| Not in the library yetSunk cost |
?4 questions
Questions people ask
Can the pain of paying be too low?
How do you measure the pain of paying?
Is a free trial a way to avoid the pain of paying?
Is the pain of paying always bad for a seller?
§9 sources
Sources
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Wikipedia, "Pain of paying" (origin of the term in Ofer Zellermayer's 1996 dissertation).
Drazen Prelec and George Loewenstein (1998), "The Red and the Black: Mental Accounting of Savings and Debt", Marketing Science 17(1).
Brian Knutson, Scott Rick, G. Elliott Wimmer, Drazen Prelec and George Loewenstein (2007), "Neural predictors of purchases", Neuron 53(1).
Scott Rick (2018), "Tightwads and spendthrifts: An interdisciplinary review", Financial Planning Review.
Lachlan Schomburgk, Alex Bellib and Arvid O. I. Hoffmann (2024), "Less cash, more splash? A meta-analysis on the cashless effect", Journal of Retailing 100(3).
Stefano DellaVigna and Ulrike Malmendier (2006), "Paying Not to Go to the Gym", American Economic Review 96(3).
John Gourville, interview with HBS Working Knowledge, "Use the Psychology of Pricing To Keep Customers Returning".
Edika G. Quispe-Torreblanca, Neil Stewart, John Gathergood and George Loewenstein (2019), "The Red, the Black, and the Plastic: Paying Down Credit Card Debt for Hotels, Not Sofas", Management Science 65(11).
Drazen Prelec and Duncan Simester (2001), "Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay", Marketing Letters 12(1).
