The Psychology of Mental Accounting
The theory of mental accounting argues that there is a tendency to mentally sort monetary funds into separate mental accounts, which affects the way we think about spending money. Mental accounting strategies vary depending on the source of income and people’s categorisation of different purchases. Even though mental accounting is often intended to prevent overspending, there is a tendency for individuals to make irrational financial decisions due to their mental accounting practices. Rigid labelling of money can lead people to make decisions that are not in their best interest and might result in an inefficient use of resources. So far, many econometric models have been derived to predict mental accounting influences on decision making. However, their explanatory power is limited due to neglecting psychological aspects and failing to conduct experimental studies to test actual behaviour. The current research tries to address this gap by investigating mental accounting from a psychology point of view in five experiments, using a series of quantitative and qualitative methods. Firstly, an initial qualitative study was conducted to explore how people conceptualised mental accounting in interviews. Secondly, an experiment was carried out to harmonise psychological insights with economic findings and test whether mental accounting had an influence on tax evasion behaviour. Then, in several follow-up experiments, tests were conducted to examine the impact of demographic variables like sex and psychological concepts such as cognitive styles and locus of control on mental accounting. The current research aimed to discover how rigid mental money categorization leads to irrational financial decisions, showing the need to integrate psychology into economic models for a more complete understanding of how people manage their resources and the reasons behind their mental accounting practices. The findings of this thesis revealed that individuals are not entirely rational decision-makers. Their perception of money sources, along with emotional factors and varying situations and conditions, can significantly influence their decision-making process.
History
Supervisor(s)
Eva Krockow; Briony Pulford; Caren Frosch; Andrew ColmanDate of award
2024-08-12Author affiliation
School of Psychology and Vision SciencesAwarding institution
University of LeicesterQualification level
- Doctoral
Qualification name
- PhD