mental accounting

Syllable breakdown

Dictionary meaning

the cognitive process by which individuals categorise, evaluate, and keep track of their financial transactions in separate mental accounts based on subjective criteria such as source of income, intended use, or emotional significance rather than treating all money as fungible; coined by Richard Thaler, mental accounting explains why people spend a tax refund differently from regular income, why they are willing to pay more for an item using a credit card than cash, and why they continue attending events in bad weather simply because they have already paid for tickets; the concept is central to understanding why standard economic models of rational self-interest fail to predict actual financial behaviour