Shot 22# Mental Accounting

October 06, 2020

Hi,

Here’s your shot.

Mental Accounting

Researchers have found that consumers use a form of mental model when they use their money, called “mental accounting”. It is simple categorisation of funds and evaluate financial outcomes. There’s no logical basis for the categorisation.

Consider the 2 scenarios

  1. You spend Rs. 500 to buy a ticket for the movie. As you arrive at the multiplex, you realise that you have lost the ticket on the way. You buy another ticket.

  2. You decide to buy the ticket at the multiplex box office. When you reach the multiplex, you realise that you have lost Rs. 500 on the way. You decide to buy a ticket anyway.

Which of the above two are you more likely to do?

Most of you reading this would go with Scenario #2.

Although the lose is same Rs. 500, in the first case you have mentally allocated Rs. 500 for movie. Buying another ticket would exceed your MENTAL BUDGET for MOVIE.

In the second scenario, the amount lost did not belong to any mental account, so you did not exceed your MENTAL BUDGET for MOVIE.

Mind=blown? :)

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