Credit cards in the freezer: explaining payment problems with behavior

Håvard Huse

Has your relationship with your credit card ever turned sour? Behavioral economics reveal why some cardholders are more irrational than others.

Credit cards have become a ubiquitous part of our daily lives; a convenient payment device tightly woven into the fabric of consumption.

However, we are also aware of the drawbacks and challenges of consumers having access to flexible credit at onerous interest rates. While economic models of consumer behavior might anticipate a rational, contemplative and forward-looking individual, we as fallible humans are somewhat aware of our own shortcomings.

This has led to stories, as the title of this article alludes to, of consumers actively interfering with their own irrational tendencies.

The tale of the sensible consumer plunging their credit card into a temporary frozen tomb to prevent shopping mishaps exemplifies this. While consumers are aware and even weary of their own behavioral shortcomings, to which extent are they able to rectify these tendencies?

Can our transactions reveal some of these behaviors ‒ and can we use these patterns to predict who might encounter payment problems?

Mental accounting

Previously, economic models that incorporate this behavior have mostly focused on revealing these tendencies in experiments.

Behavioral economics, and more specifically the field of mental accounting, may provide even more useful explanations of cardholder decision-making at odds with rational behavior.

In a study, we used actual (and fully anonymized) credit and debit card transactions from a large provider to inspect the predictive ability of some of these mechanisms. This allowed us to see if certain irrational biases can predict delinquency.

Payment decoupling, poor financial understanding and short-sightedness

Credit card usage can be helpful to some and problematic for others for the same reason – flexibility.

Swiping a credit card allows for consumption smoothing, where payment is delayed after the purchase occurs. This flexibility allows us to consume at a desired pace which differs from the regular drips of salary transactions.

However, this also allows us to separate payment and purchase in a mental sense, rendering the two decoupled from each other. For some consumers, this mental process might be more prevalent or heightened, reducing the salience of past purchases.

In addition, the credit card bill – an amalgamation of several purchases – reinforces this effect.

Financially, the credit card instrument can be perceived as a complex device. There are grace periods that are free of interest, bills that include purchases and interest, and the comprehensive evaluation of total costs including borrowing.

Previous research has shown that financial understanding is persistent, akin to a trait, and that low financial understanding is related to low credit scores.

Thus, some individuals will forego comprehensive economic evaluations when making decisions, and be more susceptible to using mental shortcuts and succumbing to irrational biases.

The lack of willpower, short-sightedness, and tendencies towards instant gratification is well established as an important factor in consumer decision-making. Delaying gratification and managing future consequences is perhaps one of the more difficult tasks a consumer faces when deciding to purchase or not.

Accounting for time is different from monetary tasks, and is wrought with subjectivity. While the difficulty of delaying gratification is something all consumers face, research suggests that some consumers are more impatient. For credit card decisions, this will intuitively affect the quality of decisions to borrow.

The mental processes impeding economic decisions

As a rule, rational consumer decisions should seek to maintain the financial status quo and not risk destabilizing the consumer’s future financial situation.

Before swiping your card, ask yourself: How will this affect my immediate finances? Will I be able to make the future payments? Is the purchase, including costs and benefits, worth it?

For credit card providers, past behavior in the form of transaction patterns revealing either decoupling, financial ineptitude or shortsightedness should not affect their judgment of a client’s present economic status.

However, the study described here not only reveals these tendencies, they also predict credit card delinquency.

In other words, the variables constructed to capture these behavioral aspects are valuable for credit card companies interested in predicting payment problems. The behavioral tendencies revealed in this study not only helps us understand irrational biases, they can also help uncover who might be heading towards financial peril.

While we might be aware of our shortcomings as individuals, perhaps we are not aware of the extent of our own irrationality.


This article is written for BI Marketing Magazine 2020.

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Atlas, S. A., Johnson, E. J. and Payne, J. W. (2017), `Time preferences and mortgage choice', Journal of Marketing Research 54(3), 415-429.

Huse, H (2019), ‘Predicting Credit Card Delinquency: A Fundamental Model of Cardholder Financial Behavior’, (Doctoral dissertation. NHH Norwegian School of Economics, Bergen, Norway). Retrieved from https://hdl.handle.net/11250/2640771

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Published 18. June 2020

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