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.

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