Mental Accounting

1. Introduction

Neel and Sam planned to spend $100 on a theater ticket. Neel purchased a ticket but then

lost it carelessly. In a separate instance of carelessness, Sam lost $100 in cash. Neel was

hesitant to spend a further $100 on a replacement ticket, while Sam's loss did not

interrupt her theater plans.

Edbert and Edrea both had $200 season tickets to a four day cricket tournament at the

Lords cricket ground. The weather on the last day wasn't great, and although the game

was on it was best watched on TV. Edbert looked at his ticket in the form of a wallet card

and stayed home saying "I've got a lot of value from this already". Edrea saw hers, in the

form of an unused coupon with today's date and felt compelled to go to the stadium to

avoid wasting what she had paid for,

Krutika and Georgia had both decided to purchase two items - a fridge (for $3000) and a

microwave oven (for $300) at an appliance store. Just as they were about to pay, they

were informed that another branch of the same store, about an hour away on a traffic-

infested highway was offering a promotion. Krutika heard that the fridge was on sale at

the other branch for $2850, while Georgia heard that the microwave was on sale for $150.

Krutika shrugged her shoulders and decided not to waste her time commuting to the other

branch; Georgia jumped into her car and joined the traffic.

While the three stories above are from fairly different domains, they share two common

characteristics. First, all three stories have to do with the evaluation of a payment and its consequence on

decision making. Second, in all stories, the two characters are in identical financial positions when their

decisions are stripped down to the bare bones. Neel and Sam were both poorer by $100, both due to

carelessness on their part. The only difference was that Neel's loss was in the form of a paper ticket

while Sam's loss was in the form of paper cash. Edbert