Mental Accounting, Utility, Value and Transaction
In mental accounting theory, framing means that the way a person subjectively frames a transaction in their mind will determine the utility they receive or expect. This concept is similarly used in prospect theory, and many mental accounting theorists adopt that theory as the value function in their analysis.
Another very important concept used to understand mental accounting is that of modified utility function. There are two values attached to any transaction - acquisition value and transaction value. Acquisition value is the money that one is ready to part with for physically acquiring some good. Transaction value is the value one attaches to having a good deal. If the price that one is paying is equal to the mental reference price for the good, the transaction value is zero. If the price is lower than the reference price, the transaction utility is positive.
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Famous quotes containing the word mental:
“The entire construct of the “medical model” of “mental illness”Mwhat is it but an analogy? Between physical medicine and psychiatry: the mind is said to be subject to disease in the same manner as the body. But whereas in physical medicine there are verifiable physiological proofs—in damaged or affected tissue, bacteria, inflammation, cellular irregularity—in mental illness alleged socially unacceptable behavior is taken as a symptom, even as proof, of pathology.”
—Kate Millett (b. 1934)