Brain Food: Why Credit Cards Hurt So Good

It's the week of Christmas and a whole subgroup of the population has put off, until the last minute, buying gifts for their loved ones. Credit, debit and gift cards are about to be working overtime, the magnetic strips wearing thin on their backsides.

It would be easy to say that swapping plastic for cold hard cash is just a seasonal thing, but the reality is that plastic is replacing cash as a preferred method of payment – whether you are buying for someone else or for yourself – anytime of the year.

The prevalence of credit cards and other forms of electronic payment isn’t just about offering convenience to the customer, though convenience is definitely part of the reason they are increasingly being used. Credit cards also don’t activate the part of the shopper’s brain that acts as an alarm system for ‘feeling the pain’ of handing over cash during a purchase. The insula, a part of the old mammalian brain, is a key player in loss aversion and pain avoidance, and has a lot to do with how easy it is to charge it.

Neuroscientists have conducted a number of studies on insula activation and believe that anticipation of physical pain gets the insula into the buy-or-not-to-buy game.

The “SHOP task” was part of a study done in 2006 by Brian Knutson and George Loewenstein at the department of Psychology and Neuroscience at Stanford University. The scientists attempted to determine whether activation of specific brain areas would be predictors of a customer’s buying decision. Their study also examined whether there were certain neural pathways that were activated by how much customers preferred a product, or if these pathways were involved in deterring the shopper from buying something because of the price. They wondered “whether anticipatory activation extracted from three regions could independently predict subsequent decisions to purchase.” The results of the study uncovered the relative activation of one brain area over another can shut down the buying process, or on the other hand, make a product irresistible.

The brains of subjects (shoppers) were observed in an fMRI machine while making decisions about buying various products. To see which areas would light up during the buying process, the shoppers were first shown products, then the item’s price tag. They were then asked to make a decision about buying the product.

When subjects were presented with things they could buy without having to make a decision about whether the price was too high or just right, the Nucleus Accumbens “NAcc” (part of the pleasure center of the brain that’s connected to dopamine release) lit up. The degree to which this area appeared to be active depended on how much they wanted to purchase the product.

A moment later, when the subjects were introduced to the price tag, areas of higher order thinking (Mesial Pre-Frontal Cortex, MPFC) and areas related to pain perception (insula) both lit up. It turns out both of these areas of the brain have a specific function with regard to determining what the customers’ next step would be.

The MPFC area of the customer’s brain performs the cost-benefit analysis of the decision making process. Immediately, it went into crunching the numbers and discriminating between the desire and price differential. The insula is incredibly adept at picking up signals about pain and is concerned with loss, which ties into aversive feelings. Since most of us consider paying too much for a product or service to elicit painful emotions, we are likely to move cautiously when jumping into a new purchase with a high price point. And, we are likely to avoid a purchase altogether when we feel the price is excessive.

The bottom line of the Knutson study was this: If the insula’s activity were greater than that of the NAcc – if the perception of the price being too high led to a feeling of anticipated pain/loss – there was no purchase. If the shopper wanted something, but the price was too high, the insula’s activity overrode the customer’s desire for the object; shoppers were likely to leave it on the shelf.

Furthermore, the heightened insula activity deactivated the mesial pre-frontal area. It actually shut down the process of thinking about whether or not potential gains would outweigh potential losses. The customer simply avoided objects where the prices seemed excessive and they were willing to set aside a purchase decision despite their apparent desire for something.

If the price point was dropped, the researchers found that the NAcc activation went up (increased desire and excitement), the insula’s activation went down (pain and loss being mitigated), while the MPFC was activated (jumping in to work the numbers).

If the NAcc activation was more than the insula and the MPFC, through working out the cost-benefit analysis, and it was determined that the combination of function and price was a good deal, then a purchase was inevitable.

Taken together, the results of this study show that pre-purchase activity of certain areas of the brain can be used as predictors of buying behavior.

More and more, we take buying goods with plastic for granted. We often don’t give it a second thought because it’s very much like the idea of acting on impulse; we simply aren’t doing too much thinking. We are operating instead from a ‘feeling place,’ the insula, and avoiding anticipated loss or pain.

Since the insula never took a class on accounting and economics, and isn’t so good with interest rates and finance charges, customers will likely be apt to make more purchases, putting off the pain of immediate payment with cash, until the bill comes at the end of the month. In the excitement of the buying moment, paying with plastic literally inhibits the insula.

The insula loves the shopping trip when credit cards are the method of payment. If the insula activity is mitigated, customers will buy things that, in the moment, they think are great. But a month from now they’ll be looking at a credit card bill and feeling something else.

But don't worry about that now … Happy Christmas shopping!

David Kepron is the creative director of Little’s Brand Experience Studio and author of “Retail (r)Evolution: Why Creating Right-Brain Stores will Shape the Future of Shopping in a Digitally Driven World,” published by ST Media Group Intl. and available online from ST Books. His retail design work focuses on the creation of relevant shopping experiences at the intersection of architecture, sociology, neuroscience and emerging digital technologies. @davidkepron; www.retail-r-evolution.com; www.littleonline.com