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Unveiling the secrets of mental accounting: How does it affect our consumption decisions?
The concept of mental accounting is a consumer behavior model proposed by behavioral economist Richard Thaler, which explores how people encode, categorize, and evaluate economic outcomes. Mental accounts not only influence individuals' consumption decisions, but also play a crucial role in their emotional responses.
"All organizations, from General Motors to individual households, have explicit and/or implicit accounting systems. These accounting systems often influence decisions in unexpected ways."
From an economic perspective, the creation of mental accounts helps people exercise self-control in managing and tracking their spending and resources. People often organize their money into different mental accounts, such as savings (like a deposit for a house) or spending categories (like transportation, clothing, or utilities). This division leads to different comfort and evaluation of money, expenses, and losses in different mental accounts.
Basic Principles of Mental Accounting
Richard Thaler breaks down the concept of mental accounting into two main principles: separation of gains and losses, and accounting reference point.
Separation of Gains and Losses
A key principle of mental accounting is that people tend to separate gains and losses rather than consider them together. For example, people are more willing to save $5 by taking a 20-minute drive when that is added to a $15 expense than a $125 expense. This suggests that people are more motivated to earn “savings” when faced with fewer smaller expenses.
Account Reference Point
Account reference point refers to the reference point that people set for current decisions in the same mental account based on previous results. For example, gamblers are more likely to make risky bets at the end of the day because they separate their daily winnings and losses into different accounts, which makes them want to balance their daily gains and losses.
Psychological Mechanisms of Consumer Behavior
Consumers' perception of "pain of payment" will affect their consumption behavior. When considering an expense, consumers compare the expense to the size of their mental account. For example, paying for a $30 t-shirt will seem more burdensome in a $50 wallet than it will be in a $500 checking account.
“Pain of payment is a negative emotional response associated with financial loss.”
Practical Applications
The concept of mental accounting is useful in explaining consumer behavior, especially in online shopping, consumer reward points, public tax policies, etc. When consumers use credit cards to make purchases, they tend to show a greater willingness to pay than when they use cash. This is because the delay in payment and the ambiguity about the total bill when using credit cards reduce the perceived "pain of payment."
Application in Marketing
The principles of mental accounting help marketers predict customer responses to price bundling and product segmentation. When faced with different types of consumption, consumers respond more actively to the splitting of gains and the integration of losses. For example, car dealers often lure consumers by combining additional features into one price but listing each item separately.
Public policy considerations
In addition, mental accounting has implications for public economics and public policy. Policymakers can apply the concept of mental accounting to the development of public systems in an attempt to identify market failures, reallocate resources, or reduce the salience of sunk costs. Many studies have confirmed this theory. For example, in an analysis of the Supplemental Nutrition Assistance Program (SNAP) in the United States, it was found that households spent significantly more SNAP funds than other sources of funds.
This not only demonstrates the influence of mental accounting on individual economic behavior, but also promotes the formulation of public policies that help rational planning and resource allocation. Against this backdrop, will mental accounting play a greater role in future economic decision-making?
