A concept first named by Richard Thaler (1980), mental accounting attempts to describe the process whereby people code, categorize and evaluate economic outcomes.
One detailed application of mental accounting, the behavioral life cycle hypothesis (Shefrin & Thaler, 1988), posits that people mentally frame assets as belonging to either current income, current wealth or future income and this has implications for their behavior as the accounts are largely non-fungible and marginal propensity to consume out of each account is different.
Read more about Mental Accounting: Mental Accounting, Utility, Value and Transaction, Mental Accounting Cost, Fallacies and Biases
Famous quotes containing the words mental and/or accounting:
“Surely it is one of the requisites of a tasteful garb that the expression of effort to please shall be wanting in it; that the mysteries of the toilet shall not be suggested by it; that the steps to its completion shall be knocked away like the sculptor’s ladder from the statue, and the mental force expended upon it be swept away out of sight like the chips on the studio floor.”
—Elizabeth Stuart Phelps (1844–1911)
“At the crash of economic collapse of which the rumblings can already be heard, the sleeping soldiers of the proletariat will awake as at the fanfare of the Last Judgment and the corpses of the victims of the struggle will arise and demand an accounting from those who are loaded down with curses.”
—Karl Liebknecht (1871–1919)