Mental Accounting And Its Effect On Consumer Decision Making

Consumers’ choices can fall prey to discrepancies that can arise in cognitive accounting but by learning when and how one falls prey to these, they can improve their decision-making process. Mental accounting affects a consumer’s decision making because it allows consumers to account for their monetary funds in different ways. The mental accounting principle is â€Å"the set of cognitive operations used by individuals to code, categorize and evaluate financial activities† (Thaler, 2008). This can occur when a consumer divides their funds into sections such current income, current wealth, or future income (Argosy University, 2015). Reason is the basis of the standard economic theory, while the mental accounting principle forms its foundation on a combination of perceived value, the way gains and losses are coded, and reference outcomes (Thaler, 2008). The mental accounting principle can affect consumer decision-making in multiple ways. One of the most common ways is through segregate gains and integrate losses. The basic principle of segregate gains is an item that is more desirable due to multiple options or included extras will influence the customer’s purchase (Thaler, 2008). On the other hand, integrate loss is when a consumer would prefer to combine their loss instead of multiples (Thaler, 2008). Another aspect that can affect consumer decision-making is the Transaction Utility Theory where a customer determines the perceived value of getting a good value or â€Å"deal†Show MoreRelatedAbstract for Choices, Values, and Frame1319 Words   |  6 PagesAmeriacn Psychologist, 39 (4) Abstract This article discuss when consumers feel a certain price which is bringing the loss rather than the income, they are more sensitive to price. Consumers are feeling a certain price more cost-effective manner and the other a less cost-effective. 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