In a comedy sketch from the early '60s, a bereaved Mike Nichols approaches funeral director Elaine May and asks for the "$65 funeral." Items he thought would be included-the casket, the hearse, the driver, the burial-all turn out to be extra. Nichols ends up much the poorer, but only after enduring a torturous series of purchasing decisions. To Drazen Prelec, scenarios like this one illustrate a much neglected fact of economic life: while it always hurts to pay, some payment schemes make the suffering worse than it needs to be.

The guilt or anxiety we feel over parting with our shekels is a double-edged sword. On the plus side, the pain can keep us from overspending. But to our detriment, it takes some of the pleasure out of consuming. "There's a kind of 'moral tax' that we incur when we pay for something," says Prelec, an associate professor of management science at the MIT Sloan School of Management. "When you purchase any good, your enjoyment is reduced by the psychological cost of paying for it." This may strike some as blindingly obvious, but Prelec contends the moral tax has yet to find its way into any economic model. More important, he says, consumers and marketers alike would benefit if they explicitly sought pricing and payment systems that "let people enjoy things without thinking about paying."

Prepayment, for example. In studies Prelec has performed with George Loewenstein, a professor of social and decision sciences at Carnegie Mellon University, consumers have made it clear that they hate the feeling of being in debt. "For some types of expenditures," says Prelec, "people claim they would prefer to prepay, even when there's no financial advantage." Vacations are such an expenditure. In one survey, consumers were asked to imagine they were planning a week in the Caribbean, at a cost of $1,200. Given the choice of making six monthly payments of $200 dollars either in advance or after their return, almost two-thirds of the respondents said they would rather prepay, even though they would incur a penalty in lost interest.

Similarly, once they're abroad, people seem to find it easier to spend in foreign currency. "It's almost like play money-it's prepaid in the psychological sense," Prelec says. He adds that Club Med is on to this psychology: guests buy beads to use instead of cash.