It is no surprise that people tend to be frugal when making purchases for themselves. They look for good deals and generally want to minimize the cost of the things that they buy.

But what about when buying things for other people?

This question was explored in a fascinating paper in the September, 2014 issue of the Journal of Personality and Social Psychology by Minah Jung, Leif Nelson, Ayelet Gneezy and Uri Gneezy.

First, in a series of field studies, they compared two conditions: Pay What You Want and Pay It Forward. In Pay What You Want, people get to decide how much they want to pay for something. In Pay It Forward, people are told that someone else has paid for them, and they have the opportunity to pay what they want for the next person.

Three studies looked at entry into a museum. That museum (the Cartoon Art Museum in San Francisco) has a Pay What You Want day each week. People attending the museum were randomly assigned to be told that they could pay what they wanted or that a previous person had paid for them and they had the option to pay what they wanted for another visitor. In each of these studies, participants paid about 30% more when paying for someone else than when paying for themselves. A fourth field study involved people buying coffee at a farmer’s market. Participants paid about 20% more when making a purchase for someone else than when making a purchase for themselves.

Why does this happen?

The researchers performed a series of laboratory experiments to explore this possibility. One study allowed some participants to meet the next participant before the study. During the study, participants were given $10 for participating and then were given a coffee mug. Some participants were told to pay what they wanted for the mug. Others were told that their mug had been paid for and they could pay what they wanted for the next participant. As in the field studies, participants paid more when they were paying for someone else (about $2.00) than when paying for themselves (about $1.50). Meeting the other participant, though, had no impact on how much they were willing to pay.

In this study, participants were also asked how much they thought other people paid for the mug. Interestingly, participants estimated that other people paid more for the mug than they were willing to pay for it themselves.

This finding suggests that people are overestimating how much other people pay for things, and that is influencing what they spend when paying for someone else. To test this possibility, another study gave people information about how much other people paid for the mug. Some people were told the previous participant paid 50 cents. Others were told that the previous participant paid $2.50. A control condition was given no information.

In this study, participants in the control condition showed the same effect as before. They paid more when paying for someone else than when paying for themselves. When given information about what other people paid, though, the difference in conditions disappeared. People who were told that the previous participant paid a small amount were willing to pay less than those who were told that the previous participant paid a lot. But, there was no longer a difference between paying for yourself and paying for someone else.

This work suggests that people adopt different ways of thinking about prices when paying for themselves and when paying for others. When paying for themselves, people want to get a good deal. That means that they want to pay something, but generally less than what they think other people are paying. When buying for someone else, though, people give more weight to their beliefs about what other people pay for things. In order to be seen as generous, people want to feel like they are adhering to a norm.

An interesting aspect of this work is that people do pay something when given the option to pay whatever they want. People have the option in all of these studies (including the field studies) to take something for free. And they do not do that. There is an inherent sense of fairness that leads people to want to pay something for goods that they take, even though they want to feel like they get a good value for their money.

One reason why people want to pay something for what they get is that there is a broad social contract involved in transactions. People assume that if they start taking things for free that eventually everyone will try to get something for nothing. And that means that their own efforts will not be valued in the future.

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