Write 200words blog of the concept “Mental accounting” discussed in class

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The concept of this week was completely new to me yet spookily familiar. Before the introduction of mental accounting, I would have continued to live my life believing that I value every dollar the same. This couldn’t be further from the truth. I could easily spend $200 using a credit card but if I’m buying something with $200 cash, I would really stop and consider the pros and cons (or opportunity cost) of the purchase. The class polls and discussions reassured me that I wasn’t alone in this.

My group and I had an interesting discussion about the debt example, mental accounting and theoretical agents. I am referring to the huge percentage of individuals who allow their high interest debt to build up while they have a similar amount in a low interest savings account. Rationally, we should pay off the debt now and build the savings up again, for a greater accumulation of wealth in the future. But we hold different views of this debt then we do of our savings, we don’t view them as equal like theoretical agents do or as they truly are.

This is an eye-opening topic to discuss and has again changed the way I view my spending, or at least I hope it has. All I know for sure is that I Thaler and applied microeconomics are really shining light on the deranged decisions we make every day, without even knowing it.


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