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:
“Cultivate the habit of thinking ahead, and of anticipating the necessary and immediate consequences of all your actions.... Likewise in your pleasures, ask yourself what such and such an amusement leads to, as it is essential to have an objective in everything you do. Any pastime that contributes nothing to bodily strength or to mental alertness is a totally ridiculous, not to say, idiotic, pleasure.”
—Philip Dormer Stanhope, 4th Earl Chesterfield (1694–1773)
“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)