Mental Accounting and Consumer Choice

These flashcards cover key terms and concepts from Richard H. Thaler's work on mental accounting and consumer choice, focusing on how consumers behave irrationally and the psychological factors influencing their financial decisions.

Mental Accounting

A cognitive framework that influences how individuals categorize, evaluate, and manage financial decisions and resources.

Prospect Theory

A behavioral economic theory that describes how individuals choose between probabilistic alternatives that involve risk, emphasizing the value placed on gains and losses rather than final outcomes.

Transaction Utility

A concept referring to the perceived value of the deal being made as compared to a reference price, influencing consumer satisfaction.

Fungibility

The property of a good or asset such that it is interchangeable with another unit of the same type.

Reference Price

The price that consumers expect to pay for a product or perceive as fair based on previous prices, market conditions, or personal experience.

Segregated Outcomes

Treating gains and losses as separate events or transactions to maximize psychological benefit.

Integrated Outcomes

Combining multiple outcomes, such as gains or losses, to simplify decision-making and minimize perceived pain.

Cancellation Principle

The principle that suggests mixing a small gain with a larger loss can mitigate the perception of the loss.

Endowment Effect

A psychological phenomenon where people assign greater value to items they own compared to items they do not own.

Framing Effects

The way information is presented (framed) affects decisions and judgments, particularly in financial and economic contexts.

Acquisition Utility

The utility derived from the value of the good received relative to the price paid.

Self-Control Problems

Challenges individuals face when trying to regulate their consumption and spending due to immediate desires conflicting with long-term goals.

Behavioral Economics

A field of economics that incorporates psychological insights into human behavior to explain economic decision-making.

Consumer Choice

The decision process by which consumers select among alternative goods and services.

Sunk Cost

A cost that has already been incurred and cannot be recovered, often leading to irrational decision-making when individuals consider it in future choices.

Multiple Accounts

The division of financial resources into distinct categories or budgets, influencing purchase decisions based on perceived availability.