The Psychology of Borrowing and Lending

How do we feel when other people – like our friends and family – spend our money? A great deal of research explores the factors that influence our satisfaction with the goods and services that we consume with our own money (Bearden and Teel 1983; Spreng et al. 1996; Van Boven and Gilovich 2003). However, there is surprisingly little research on the factors that influence our satisfaction with the goods and services that other people consume with our money. In particular, we explore the case in which one person loans another a sum of money and then must watch (uncomfortably) as that borrower spends that cash before paying it back to the lender. We suggest that this mixing of friendship and finance can quickly go awry, harming relationships in the process. Researchers have drawn distinctions between market and communal relationships (Fiske 1992) and the unique currency (i.e., financial and social, respectively) that is acceptable for exchange within each (Heyman and Ariely 2004). Situations that blend the two types of exchanges – like close friends loaning money to each other in the manner of a bank – often have unexpected consequences. Exchange relationships between lenders and borrowers are unique but prevalent; the implications can be small, ranging from a cup of sugar lent to one’s neighbor, to monumental in the 2008 example of the federal government loaning A.I.G. money in the largest bailout in American history (Walsh 2008). Due to the everyday and large-scale implications of lending relationships, it is important for researchers to understand how the details of the exchange, the purchase, and different expectations influence satisfaction with the various dimensions of the lending and borrowing experience.