Definition
- Mental accounting
- Mental accounting is putting money into different mental categories where it takes different values, rather than treating every pound as worth the same.
Example
Can you think of an example of mental accounting?
A student treats £25 found in the street as spending money and blows it on a whim, yet would weigh every penny of £25 earned from three hours behind a counter.
Test yourself
Can you name the four ways real decisions depart from the rational model?