THE DENOMINATION EFFECT ON SPENDING THROUGH EXPERIMENTAL APPROACH

Abstract

This paper discusses the denomination effect on shopping decisions in a more realistic spending scenario with various types of goods and relatively adequate denominations, including the specimen of IDR 200,000 banknote which was being investigated, in 2015, to be printed by Bank Indonesia, and some other factors affecting spending. This research used an experimental design in a laboratory study and quasi-experimental design in a field study In the field study the denomination of IDR 200,000 was represented by using two pieces of the existing IDR 100,000 banknote, considered as a single IDR 200,000 banknote. Therefore, if it was used for shopping, both two banknotes of IDR 100,000 must be given to the seller even though the price of the purchased goods was below IDR 100,000. This research showed consistent results between the laboratory and field studies, which can be summarized as follows: (1) total spending is not significantly different when using large or small denominations; (2) total expenditure is greater for consumers with low self-control; and (3) the large denomination is very influential for goods with high price, especially during unplanned shopping. This result implies the need for larger denominations for regions with high priced goods.