Journal ArticleDOI
Mental accounting matters
TLDR
Mental accounting is the set of cognitive operations used by individuals and households to organize, evaluate, and keep track of financial activities as discussed by the authors, where outcomes are perceived and experienced, and how decisions are made and subsequently evaluated.Abstract:
Mental accounting is the set of cognitive operations used by individuals and households to organize, evaluate, and keep track of financial activities Making use of research on this topic over the past decade, this paper summarizes the current state of our knowledge about how people engage in mental accounting activities Three components of mental accounting receive the most attention This first captures how outcomes are perceived and experienced, and how decisions are made and subsequently evaluated The accounting system provides the inputs to be both ex ante and ex post cost–benefit analyses A second component of mental accounting involves the assignment of activities to specific accounts Both the sources and uses of funds are labeled in real as well as in mental accounting systems Expenditures are grouped into categories (housing, food, etc) and spending is sometimes constrained by implicit or explicit budgets The third component of mental accounting concerns the frequency with which accounts are evaluated and ‘choice bracketing’ Accounts can be balanced daily, weekly, yearly, and so on, and can be defined narrowly or broadly Each of the components of mental accounting violates the economic principle of fungibility As a result, mental accounting influences choice, that is, it matters Copyright © 1999 John Wiley & Sons, Ltdread more
Citations
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Journal ArticleDOI
Time Discounting and Time Preference: A Critical Review
TL;DR: In this paper, the authors discuss the discounted utility (DU) model, its historical development, underlying assumptions, and "anomalies" -the empirical regularities that are inconsistent with its theoretical predictions.
Journal ArticleDOI
A perspective on judgment and choice: Mapping bounded rationality.
TL;DR: Determinants and consequences of accessibility help explain the central results of prospect theory, framing effects, the heuristic process of attribute substitution, and the characteristic biases that result from the substitution of nonextensional for extensional attributes.
Journal ArticleDOI
Maps of Bounded Rationality: Psychology for Behavioral Economics
TL;DR: Kahneman as mentioned in this paper made a statement based on worked out together with Shane Federik the quirkiness of human judgment, which was later used in his speech at the Nobel Prize in economics.
Journal ArticleDOI
When and Why Incentives (Don't) Work to Modify Behavior
TL;DR: In this article, the authors discuss how extrinsic incentives may come into conflict with other motivations and examine the research literature on three important examples in which monetary incentives have been used in a non-employment context to foster the desired behavior: education, increasing contributions to public goods, and helping people change their lifestyles, particularly with regard to smoking and exercise.
Journal ArticleDOI
Naive Diversification Strategies in Defined Contribution Saving Plans
TL;DR: In this paper, it was shown that the proportion invested in stocks depends strongly on the proportion of stock funds in the plan and that some investors follow the "1/n" strategy.
References
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Book ChapterDOI
Prospect theory: an analysis of decision under risk
Daniel Kahneman,Amos Tversky +1 more
TL;DR: In this paper, the authors present a critique of expected utility theory as a descriptive model of decision making under risk, and develop an alternative model, called prospect theory, in which value is assigned to gains and losses rather than to final assets and in which probabilities are replaced by decision weights.
Journal ArticleDOI
Prospect theory: analysis of decision under risk
Daniel Kahneman,Amos Tversky +1 more
Journal ArticleDOI
The Framing of Decisions and the Psychology of Choice
Amos Tversky,Daniel Kahneman +1 more
TL;DR: The psychological principles that govern the perception of decision problems and the evaluation of probabilities and outcomes produce predictable shifts of preference when the same problem is framed in different ways.
Journal ArticleDOI
Advances in prospect theory: cumulative representation of uncertainty
Amos Tversky,Daniel Kahneman +1 more
TL;DR: Cumulative prospect theory as discussed by the authors applies to uncertain as well as to risky prospects with any number of outcomes, and it allows different weighting functions for gains and for losses, and two principles, diminishing sensitivity and loss aversion, are invoked to explain the characteristic curvature of the value function and the weighting function.
Posted Content
Choices, Values, and Frames
Daniel Kahneman,Amos Tversky +1 more
TL;DR: Prospect theory as mentioned in this paper is an alternative to the classical utility theory of choice, and has been used to explain many complex, real-world puzzles, such as the principles of legal compensation, the equity premium puzzle in financial markets, and the number of hours that New York cab drivers choose to drive on rainy days.