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Mental Accounting. Mental accounting. Utility theory is a common currency theory All options are evaluated with respect to utility But all gains and losses are not viewed as the same. People seem to have a variety of mental accounts. .

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Mental Accounting

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Mental accounting l.jpg

Mental Accounting


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Mental accounting

  • Utility theory is a common currency theory

  • All options are evaluated with respect to utility

  • But all gains and losses are not viewed as the same.

    • People seem to have a variety of mental accounts.

Imagine you are shopping for a calculator and a jacket, and you find them both at the same department store. The calculator costs $25, and the jacket costs $120. You are told that a store across town has both items, but the calculator is $15 cheaper at that store. Do you buy the items at that store or do you go across town.

Most people say yes.

If the jacket is $15 cheaper, most people say no.

In each case, they have spent the same amount of money.


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Mental Accounting

  • The idea is that people are creating separate mental accounts for different goals.

    • Money for necessities

    • Money for entertainment

    • Spending money from one account does not affect others.

Imagine you have gone to the movies to see a show. You got to the front of the line and realized you lost $10, do you still go to the movie?

Most people say yes

Imagine you have gone to the movies to see a show. The ticket costs $10. You buy the ticket early in the day. When you get to the theater, you realize you lost the ticket. Do you buy another one?

Most people say no.


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Types of Money

  • Money for necessities

  • Gift money

  • Entertainment money

  • Wages

  • Wealth

  • What do you do with these kinds of money?


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Monetizing Relationships

  • There are many things we do not want to turn into commodities

    • Human life

    • Human body

    • Sexuality

  • These things have value, but we assess their value in other ways.

    • We do not want the value of these items to be easily comparable to other goods.


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Why are there types of money?

  • Decision making and categorization

  • Are economic theories right?


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Self Regulation

  • Why are there mental accounts?

  • Long-term and short-term goals

  • Short-term goals are often more strongly active than long-term goals

    • How can we protect long-term goals from competing short-term goals?

  • Policies for making choices.


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Preparing for Peer Editing

  • Everyone in the class needs a partner

  • Exchange email addresses

  • When paper is due, email it to your partner

  • You will be discussing your comments on your partner’s paper at peer editing session.


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