Since the 1970's there has been growing evidence supporting the frequently heard conjecture that credit cards encourage spending. For example, it is known that people who own more credit cards make larger purchases per department store visit (Hirschman 1979), and that restaurant tips are larger when payment is by card (Feinberg 1986). There is also evidence that credit card users are more likely to underestimate or forget the amount spent on recent purchases (Soman 1999). Perhaps the most compelling evidence, however, is that offered in an experimental analysis of the effect by Feinberg (1986). In that investigation participants were asked how much they would be willing to spend for various consumer products in a setting where credit card paraphernaliaÐostensibly unrelated to the taskÐwere displayed on the experimental desk. He found that by so decorating the experimental setting, he could boost hypothetical willingness-to-pay estimates by 50± 200%, relative to the estimates of a control group. We refer to this increase as the credit card premium. Feinberg also found that response times were substantially shorter in the presence of the credit card stimuli. In a similar vein, Soman (1999) demonstrated that framing hypothetical purchases as credit card payments may signi®cantly increase purchase likelihood and willingness to pay.

While these studies offer suggestive evidence supporting a credit-card premium, this evidence is indirect, and the causal mechanism that produced these results has been left uncertain. For example, ®eld evidence in support of higher spending with credit cards (such as Hirschman 1979), could naturally be explained by differences between credit card owners and non-owners, or differences in the occasions on which cash and credit cards are the preferred methods of payment. While Feinberg's and Soman's results are free of this confound, the generality of their ®ndings is also limited, but by different factors. For example, only one of these studies (Feinberg, Study 3) involved real money transactions; charitable donations to the United Way. Although the presence of credit card logos in the study did increase donation size, the absolute amounts were small (average donations were 11¢ and 33¢ for the cash and credit card conditions). Second, Feinberg's studies only manipulated exposure to credit card stimuli and not the payment method itself. Payment was left ambiguous in the perceived value studies, while the United Way study requested donations in cash.