Denomination Effect

Have you noticed the bills with larger denomination staying in your wallet for longer time? Do you ask your friends to pay and settle it later with them if you have bills with larger denomination in your wallet?

According to Priya Raghubir and Joydeep Srivastava in a paper titled “Denomination Effect”, people are less likely to spend larger bills than their equivalent in smaller bills. So you spend less if you have a single $20 bill than twenty $1 bills.

We also fear once larger bill is broken into smaller ones, the money will vanish in no time! Priya and Joydeep uses the term “tightwads” to describe this phenomenon. This fear has also fuelled many interesting conversations among friends when it comes to paying bills as early as from the college days.

I paid last time. You pay now and I will settle it with you later.

I also have a large bill. No, I don’t want to pay. Why do I pay all the time?

In these turbulent times, if anyone owes you money, it is better to ask for larger bills at the time of repayment so that it will linger in your wallet for a longer time.

Tags: Musings,Denomination Effect,Priya Raghubir,Joydeep Srivastava,Money,Tightwads