Mental accounting – What is it, definition and concept

The mental accounting theory explains the ability of the brain to classify, organize and spend the income received based on its origin.

That is, they are the mental calculations and the scheme that we have in our head used to spend what we have entered.

It was devised by Richard Thaler, Nobel Prize in Economics in 2017. In his research, he discovered that the source of income affects the effort of spending. In this way, for example, the money that is obtained in a simple way is spent more easily.

The Origin of Mental Accounting Theory

This concept was coined by Thaler himself. This economist was the father of psychology applied to economics. In fact, he challenged the concept of decisions based on reason, homo economicus. According to him, the human being is, above all, emotional.

Their findings were based on empirical experiments with volunteers to find out what they spent their income on and why. He discovered that we unconsciously categorize our spending. But we do not do it from reason, but from emotion. Let’s see how.

The push theory

The push theory is based on that of mental accounting. It states that if we have to choose between two options, we will normally choose the easier one. This may seem obvious, but there is more, we will choose it, even if it is not the most suitable from an economic point of view.

In this way, it seems that we make decisions based on the necessary effort. Even if we are presented with a proper analysis, we take the least complicated path. We decide to eat hamburgers, even though we know the advantages of healthy food.

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The Mental Accounting Bias

Actually, we are dealing with a variant of the mental accounting theory. In a simple way, it shows how we spend money differently when it comes to us with or without effort. Thus, in the second case the tendency is to squander it.

Therefore, we could say that the marginal propensity to consume increases or decreases depending on the source of income. If it arrives without us having to carry out previous work, what usually happens is that we dedicate a greater amount to consumption.

Example of mental accounting. taxes

Let’s see an example: What would happen if the government asked us for an amount of money from our work to carry out an activity that could benefit us? Well, it is very likely that we think about it very well before deciding and the reason is that it costs us a lot to earn that money.

Let us now imagine that it is decided to pay for it with taxes. Most of us have internalized that these are paid yes or yes. Now, according to mental accounting theory, we are likely to accept such activity without much thought, because we don’t see it directly affecting us.

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