mental accounting

economics

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Last updated

July 21, 2026

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Mental accounting is a concept in behavioral economics, pioneered by Nobel laureate Richard Thaler. It describes how individuals categorize and evaluate financial outcomes.

Instead of viewing all money as fungible, people mentally segregate funds into different "accounts" (e.g., savings, entertainment, bills). Decisions are then made based on the impact on a specific account, rather than the overall financial picture. For example, someone might avoid using savings for an unexpected expense, opting instead for a costly loan, because they mentally separate their savings from their general funds. This can lead to suboptimal financial choices.1

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Richard Thaler
In the phenomenon of “mental accounting,” for example, individuals mentally divide their expenses into different categories, or accounts (e.g., mortgage, home maintenance, food, clothing, entertainment, and savings), and make spending decisions based solely on the effects on the relevant account rather than on total assets. Although mental accounting may…
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In the phenomenon of “mental accounting,” for example, individuals mentally divide their expenses into different categories, or accounts (e.g., mortgage, home maintenance, food, clothing, entertainment, and savings), and make spending decisions based solely on the effects on the relevant account rather than on total assets. Although mental accounting may…
Read More