Mental Accounting

Created by: Rehzi
Created on: 01-01-18 23:09

What is mental accounting ?

is the set of cognitive operations used by individuals and households to code categorize and evaluate financial activities`

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What is Hedonic editing?

internal process whereby individuals code or parse combinations of events in such a way as to make themselves as happy as possible

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What are its implications for marketing?

Better to emphasise saving (e.g. ‘Save £2.00’ which segregates small gain from large loss) than aggregate into new price (only £18.00 which aggregates these two)

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What is outcome evaluation?

Traditional marketing based on classic economic model: • Assumes purchases based on benefit (utility) from consuming the good and cost (identical for two versions of problem).

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Budgeting and Fungibility

Similar to firms, individuals/families set budgets (informally). How these are set is critical to how they are used.

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What is fungibility?

Fungibility is the extent to which money in one category is substitutable and equivalent to money in other categories.

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What is consumption budgeting?

choose between different options for spending money Create self control to ensure there is enough money for all the things we need and want to do

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What is income budgeting?

People often find it hard to distinguish between changes in income and changes in wealth. • However, changes in both seem to be evaluated along a ‘frivolity’ scale that affects how they are spent (again showing lack of fungibility ).

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What is wealth budgeting?

People categorise their wealth in terms of liquidity

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Other cards in this set

Card 2

Front

What is Hedonic editing?

Back

internal process whereby individuals code or parse combinations of events in such a way as to make themselves as happy as possible

Card 3

Front

What are its implications for marketing?

Back

Card 4

Front

What is outcome evaluation?

Back

Card 5

Front

Budgeting and Fungibility

Back

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Mental Accounting