Mental Accounting and Economic Behaviour

Antonides, Gerrit; Ranyard, Rob


This chapter first presents an overview of research into mental accounting and its effects on economic behaviour. It then considers mental accounts posited to broadly categorize financial resources across the life-cycle, and those constructed for specific transactions. Mental accounting has several important psychological functions, although it is not considered rational in standard economic theory. One function is to simplify decision-making, and related to this, to apply self-control in order to spread positive outcomes across the life-cycle. These combine to contribute to successful money management and budgeting. Additionally, the mental accounting processes of integration and segregation may have hedonic functions, such as buffering the pain of payment or distributing positive experiences in an enjoyable way. Finally, the chapter also discusses models based on broad mental accounts across the life-cycle, specific ones constructed for a single transaction and other categorizations of money based on, for example, income source, spending and saving categories, and medium of payment.