Mental accounting

Mental accounting (or psychological accounting) is a model of consumer behaviour developed by Richard Thaler that attempts to describe the process whereby people code, categorize and evaluate economic outcomes. Mental accounting incorporates the economic concepts of prospect theory and transactional utility theory to evaluate how people create distinctions between their financial resources in the form of mental accounts, which in turn impacts the buyer decision process and reaction to economic outcomes. People are presumed to make mental accounts as a self control strategy to manage and keep track of their spending and resources. People budget money into mental accounts for savings (e.g., saving for a home) or expense categories (e.g., gas money, clothing, utilities). People also are assumed to make mental accounts to facilitate savings for larger purposes (e.g., a home or college tuition). Mental accounting can result in people demonstrating greater loss aversion for certain mental accounts, resulting in cognitive bias that incentivizes systematic departures from consumer rationality. Through increased understanding of mental accounting differences in decision making based on different resources, and different reactions based on similar outcomes can be greater understood. As Thaler puts it, “All organizations, from General Motors down to single person households, have explicit and/or implicit accounting systems. The accounting system often influences decisions in unexpected ways”. Particularly, individual expenses will usually not be considered in conjunction with the present value of one’s total wealth; they will be instead considered in the context of two accounts: the current budgetary period (this could be a monthly process due to bills, or yearly due to an annual income), and the category of expense. People can even have multiple mental accounts for the same kind of resource.

About this result

This page is automatically generated and may contain information that is not correct, complete, up-to-date, or relevant to your search query. The same applies to every other page on this website. Please make sure to verify the information with EPFL's official sources.

Related publications (4)

Related concepts (9)

Framing (social sciences)

In the social sciences, framing comprises a set of concepts and theoretical perspectives on how individuals, groups, and societies organize, perceive, and communicate about reality. Framing can manifest in thought or interpersonal communication. Frames in thought consist of the mental representations, interpretations, and simplifications of reality. Frames in communication consist of the communication of frames between different actors. Framing is a key component of sociology, the study of social interaction among humans.

Choice architecture

Choice architecture is the design of different ways in which choices can be presented to decision makers, and the impact of that presentation on decision-making. For example, each of the following: the number of choices presented the manner in which attributes are described the presence of a "default" can influence consumer choice. As a result, advocates of libertarian paternalism and asymmetric paternalism have endorsed the deliberate design of choice architecture to nudge consumers toward personally and socially desirable behaviors like saving for retirement, choosing healthier foods, or registering as an organ donor.

Framing effect (psychology)

The framing effect is a cognitive bias where people decide between options based on whether the options are presented with positive or negative connotations. Individuals have a tendency to make risk-avoidant choices when options are positively framed, while selecting more loss-avoidant options when presented with a negative frame. In studies of the bias, options are presented in terms of the probability of either losses or gains. While differently expressed, the options described are in effect identical.

Axial and radial axonal diffusivities and radii from single encoding strongly diffusion-weighted MRI

Erick Jorge Canales Rodriguez, Marco Pizzolato, Tim Bjørn Dyrby

We enable the estimation of the per-axon axial diffusivity from single encoding, strongly diffusion-weighted, pulsed gradient spin echo data. Additionally, we improve the estimation of the per-axon radial diffusivity compared to estimates based on spherica ...

ELSEVIER2023

Matching Seqlets: An Unsupervised Approach for Locality Preserving Sequence Matching

Pascal Fua, Xinchao Wang

In this paper, we propose a novel unsupervised approach for sequence matching by explicitly accounting for the locality properties in the sequences. In contrast to conventional approaches that rely on frame-to-frame matching, we conduct matching using sequ ...

IEEE COMPUTER SOC2021

A meta-analysis reveals temperature, dose, life stage, and taxonomy influence host susceptibility to a fungal parasite

Suzanne Marie Young

Complex ecological relationships, such as host-parasite interactions, are often modeled with laboratory experiments. However, some experimental laboratory conditions, such as temperature or infection dose, are regularly chosen based on convenience or conve ...

WILEY2020