Mental Accounting

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Mental Accounting

A concept stating that investors and people divide up their current and future assets into different categories. These categories may be roughly thought of as "safety capital," which one uses to fulfill personal needs and make low-risk investments, and "risk capital," which one uses for high-risk transactions. Mental accounting is important to understanding certain investment decisions: rather than treating each unit of money as if it were exactly the same, people generally assign it into what they need and what they do not need. This effectively turns money, which is fungible, into something that is not fungible. See also: Behavioral economics.

References in periodicals archive ?

Thanks to his work and others', we know a lot more about the biases and anomalies that distort our perception and thinking, like the endowment effect (once you own something you value it more than before you owned it), mental accounting (you think about a dollar in your pocket differently than you think about a dollar in the bank) and all the rest.

The art of persuasion and thinking well

As argued by Thaler (2004), mental accounting matters because it violates the economic notion of fungibility; that is, from the individual's point of view, money in one mental account is not a perfect substitute for money in another.

Self-insurance, self-protection, and saving: on consumption smoothing and risk management

Mental accounting occurs widely in real life, as the book illustrates in many examples and paradigms.

Behavioral economics: humans vs. econs, a history of bringing traditional economics down to earth

The Mental Accounting Behavioral Economics principle (which refers to a person's tendency to bucket money based on its intended use) prompts Boomers to view Medicare Supplement Insurance as more confidence inspiring, and helps them reframe and justify its cost.

Wilde Agency Releases Research Study on Behavioral Economics

In the context on internet based business, mental accounting theory is defined as a cognitive process among individuals to code, compare and evaluate products and services based on the value and utility offered (Aimei et al.

Implications of perceived utility on individual choice and preferences: A new framework for designing recommender system

The pronouncements, available for download as PDFs, include Statements of Govern mental Accounting Standards, Concepts Statements, Interpretations, and Technical Bulletins.

Website of the month: GASB

Temporal landmarks, including personally meaningful events such as birthdays and job changes as well as socially constructed calendar partitions like a new month or a public holiday, demarcate the passage of time and open new mental accounting periods, Milkman said.

Beyond New Year's resolutions: use key dates to motivate clients: new month, new week, birthdays all good times to start a new goal

Mental accounting is a concept developed out of a synthesis of ideas in cognitive psychology and microeconomics.

The nonfungibility of mental accounting: a revision

Mental accounting refers to one's ability to subjectively frame transactions in one's mind involving intertemporal consumption or saving decisions.

Do psychological factors emanating from a financial crisis affect consumption? Evidence from China

Burney is depicting, at work, a mental accounting process through which characters choose between immediate and delayed gratification.

Negotiating money in The Wanderer: lessons from behavioral economics

This stupid investment mistake is called Mental Accounting.

Behavioral economics, part 2: why smart seniors make stupid mistakes with their money

In Mental Accounting and Consumer Choice: evidence from Commodity Price shocks (NBER Working Paper No.