The Role of Mental Accounting in Everyday Economic Decision Making
Tommy Gärling Niklas Karlsson Marcus Selart Göteborg University
How people make economic decisions with the aim of managing scarce resources, primarily of money but also of time and effort, is an ecologically valid topic that has been a focus of economic psychology ( Wärneryd, 1988), although largely neglected in psychological research on judgment and decision making. In fact, almost every day people face economic decisions concerning earning, spending, and saving money. A ubiquitous aspect of such decisions is that they entail choices between immediate and deferred consumption. Examples are ample: Should I spend money on a nice evening at a restaurant now, or should I save the money for my vacation next summer? Because I have the opportunity to buy an attractive CD player, should I buy it now even though it is likely that I will need the money in the future for repairing my aging washing machine? Apparently, choosing an immediate attractive outcome may be a threat to future well-being, or, to put it differently, not choosing an immediate outcome is a sacrifice that will pay off later.
When making choices between outcomes occurring at different points in time such as between immediate and deferred consumption, people must perform value comparisons taking into account at which time in the future the outcomes occur. Such comparisons are difficult, because people's cognitive capacity in evaluating future events may be limited. In a major conceptual analysis of decision making, risk taking, and psychological time, Björkman ( 1984) notes that although the concept of "expected utility" (implying a time interval between the choice of an alternative and the outcome of the choice)