The $5 Experiment That Reveals How We REALLY Spend Money

People spend money differently depending on how its presented.

When Daniel Kahneman and Amos Tversky wanted to study how and why we spend, they ran a little experiment.

They told some study participants to imagine they were about to buy a jacket for $125 and a calculator for $15.

These people were then told by the salesperson that the same $15 calculator was only $10 at a store 20 minutes away.

Almost 70% of these people said they’d make the 20 minute drive to save $5.

Then another group of participants was asked to imagine they were going to buy a $125 calculator and a $15 jacket.

The salesperson told them that the $120 calculator was $5 cheaper at a store 20 minutes away.

But this time, only 29% of people said they’d take the 20 minute drive to save $5. 

Same drive. Same amount of savings.

Mathematically, this makes no sense.

$5 is $5, no matter what total price you’re paying.

But our brains don't work like calculators.

We think of money differently depending on how it’s presented to us.

This behavior is called Mental Accounting.

It describes how we psychologically sort money into different “buckets” depending on how it’s framed and what we’re spending it on.

I saw this principle in action with a client.

When he reached out to me, he had been laid off 6 months earlier from a senior marketing role, and had decided to strike out on his own as an independent marketing consultant and business coach.

While he had world-class marketing skills, he was new to finding leads and landing clients for his own business.

His biggest issue was hearing from potential buyers was that his $12,000 core offer was a "big investment" and then ghosting after hearing the price.

Even though it was the same, or slightly under what less accomplished and experienced competitors were charging.

One thing to note is his potential clients were well-paid executives.

These same people had no problem spending:

• $1000/month on eating out

• $250/month on coffee and sweet treats

• $800/month on a personal trainer

(That's $24,000+ per year on “little” monthly expenses.)

But because these “little” costs came from a different psychological bucket than one-on-one coaching, they felt painless…

While the one-time $12,000 payment felt like a big chunk of change (and a big risk).

So we made a small tweak to his pricing:

Instead of charging $12,000 upfront, we reframed his offer as $2000/month.

The same price.

But now framed as a monthly expense, so the coaching fit into people's "monthly payments" mental account, alongside personal training and little treats.

This made the $12,000 feel less psychologically painful, even though buyers were paying 6x instead of once.

My client was happy to finally start booking more clients.

It was a huge psychological relief to have consistent income after a layoff, and in less than 7 months he was able to completely replace his corporate salary.

Why did this work?

Because psychology tells us we don't treat all spending the same.

• ✅ "Found money" like tax returns or bonuses gets spent more freely

• ✅ "Monthly expenses" feel smaller than one-time purchases

• ✅ And "little treats" get less scrutiny than "big investments"

You can see this in business behavior as well:

• ✅ Peloton sells $2,500 bikes for $64/month

• ✅ Adobe switched from selling $700 software to $50/month subscriptions

• ✅ Car salespeople always lead with the monthly payment, not the total sticker price

How you design your price will be different depending on your brand, product, customer, and industry.

Framing products as a monthly subscription isn’t right for every industry.

A marketing consultant, a fast food brand, a design agency, a mobile app, and an auto brand all need to use different psychological pricing strategies.

Some products even sell faster when they feel more expensive, not less.

It all comes down to knowing what makes your buyers tick - their mental models and the marketing psychology strategies that best suit them.

Every day I help people figure out how to craft their offers, marketing, and pricing so they can sell more and charge more (with psychology and behavioral science).

I do this inside of Choice Hacking Pro.

This is where I’ll act as your Chief Marketing Copilot, helping you implement the frameworks and tools that have helped me generate $250M+ in marketing returns and $10M+ in investment for my clients.

There are only 6 spots available for this intake - and 50% have already been reserved.

Spots are first come, first served.

The price is going up by $150 when the intake opens next week.

But if you want to reserve one of the 3 spots I have left and lock in the lower price, reply “reserve” to this email and I’ll share the details.

Until next time,
Jen