Mental Accounting Theory

1151 Words5 Pages
The main theory behind this research is mental accounting, established by economist Richard Thaler. Mental accounting is the set of cognitive operations used by individuals to organize, evaluate, and keep track of financial activities. Mental accounting does not, unlike other accounting ways, consist of numerous rules and conventions that have been codified over the years. We can learn about mental accounting only by observing behaviour and inferring the rules. The focus of the theory will be on a few parts of mental accounting.

The first part captures how outcomes are perceived and experienced, and how decisions are made and subsequently evaluated. With mental accounting both ex ante and ex post cost-benefit analyses can be made. The second
…show more content…
The main finding is that financial literacy can have important implications for financial behaviour. A few examples that indicate the importance of financial literacy in general, in the next paragraph we will go deeper into previous literature. A person with a low financial literacy is more likely to have problems with debt (Lusardi & Tufano, 2009), less likely to participate in the stock market (van Rooij, Lusardi, & Alessie, 2011b), less likely to choose mutual funds with lower fees (Hilgert, Hogarth, & Beverly, 2003; Stango & Zinman, 2007) and less likely to plan for retirement (Lusardi & Mitchell, 2007). These researches showed that financial that financial literacy has an important role in financial decision…show more content…
In general, economist prefer to use objective measures in their research, but there is growing interest in the use of subjective measure for studying different types of economic or financial behaviours such as perceptions of life satisfaction, happiness and well-being (Kahneman & Krueger, 2006; Stanca, 2012; Corazzini, Esposito, & Majorano, 2012), risk (Hallahan, Faff, & McKenzie, 2004; Botzen & van den Bergh, 2012; Kelly, Letson, Nelson, Nolan, & Solis, 2012) and credit scores (Courchance, Gailey, & Zorn, 2008). Also political scientist have relied on subjective measurements methods, like public opion polls, of political or voting behavior (Jacoby, 2010; McDonald & Tolbert, 2012). The medical field has been using self-assessments in order for getting feedback from patients on subjective concepts such as pain (Turk & Melzack,

More about Mental Accounting Theory

Open Document