In the early 1990s, a behavioral scientist at the University of Chicago named Dilip Soman set out to study the effects of consumer credit, on the human brain. Soman, an Indian-born engineer, had become curious after watching how casual Americans were about credit card debt. Not only did consumers here use credit cards for everyday purchases (something almost unheard of in India), but many of us also carried large balances and thus paid high interest. Such behavior was clearly irrational and even risky. Yet, it was the norm in the United States.

In one of his studies, Soman had subjects pay a large number of fictitious household bills using either credit or a check, after which he offered each of them the chance to spend $450 on a vacation. Those who had paid the bills with credit, Soman found, were nearly twice as likely to splurge on the vacation as those who'd paid with a check.

In another study, Soman waited outside the university bookstore and asked exiting shoppers if they could recall the amount of their recent purchases. He then compared their answers to their receipts. The results were almost comical. Of those who paid with cash, check, or debit card, fully two-thirds could recall the purchase amount to the penny, while the remaining third came within three dollars. But those who bought on credit? Even though they'd made the purchases less than ten minutes earlier, only a third of the subjects could get within a dollar of the actual purchase amount. A third were between 15 and 20 percent too low. A third had no recollection whatsoever. Soman concluded. "People who routinely use credit cards simply don't have a good memory for how much they had paid."