What is Mental Accounting?

Mental accounting was mentioned in a theory by Richard H. Thaler, winner of the Nobel Prize in Economics in 2017, which explains how our spending is irrational, that is, it analyzes how our mind can deceive us when taking out a loan, making purchases on a promotion or even make mistakes when organizing a family budget.


When looking for a loan, we calculate how much we will have to pay each month, but we don't pay attention to the interest rate charged, we just simplify our analysis to satisfy an immediate need. In this case, we ask ourselves: can I pay this amount? If the answer is yes, then the matter is resolved, that is, we made an irrational financial decision motivated by an immediate need.


The studies of Richard H. Thaler question, for example, the belief of traditional economic theories that men are rational beings, who make decisions by calculating costs and benefits. He created an analysis scheme that describes how we organize and make decisions by creating different accounts in our mind that deceive us and that often make us lose money. And this is explained by habit and lack of time to reflect.


An example of this irrational decision can occur when, although we have access to information about healthy foods, we still often choose unhealthy meals, because haste, habit and convenience push us, in this case, to opt for the most harmful option.


Thus, Richard Thaler's theory of mental accounting (or psychological accounting) attempts to describe the process by which people code, categorize, and evaluate economic outcomes. People can have multiple mental accounts for the same resource type. Thaler shows that we are also influenced by the form of payment, as supermarket shoppers spend less money in the market when paying with cash than with their debit cards (and credit cards), even though both debit and cash cards do the same. same economic resource. Comparing the price of goods to a smaller mental account (eg, the money in your wallet) than to a larger mental account (eg, the money in your bank accounts) increases "payment pain".


A detailed application of mental accounting, the behavioral life cycle hypothesis (Shefrin & Thaler 1988), posits that people mentally frame assets as belonging to current income, current wealth, or future income and this has implications for their behavior.


If mental accounting can translate into an irrational decision in relation to costs and benefits, on the other hand, accounting is a human science and not exact, so, due to this characteristic, it requires understandings and judgments associated with the facts and circumstances of each business and event. , but the conclusions must be assertive, so that they are aligned with the conclusions of others affected and interested in the accounting, financial and economic information reached. Today we have international accounting standards, both public and private, for the global standardization of information produced and disseminated by private and public entities.