Special Session Summary New Developments in Mental Accounting: Implications For Consumer Choice

Ravi Dhar, Yale University
[ to cite ]:
Ravi Dhar (1996) ,"Special Session Summary New Developments in Mental Accounting: Implications For Consumer Choice", in NA - Advances in Consumer Research Volume 23, eds. Kim P. Corfman and John G. Lynch Jr., Provo, UT : Association for Consumer Research, Pages: 210.

Advances in Consumer Research Volume 23, 1996      Page 210

SPECIAL SESSION SUMMARY

NEW DEVELOPMENTS IN MENTAL ACCOUNTING: IMPLICATIONS FOR CONSUMER CHOICE

Ravi Dhar, Yale University

A wide body of research indicates that decisions are affected by how outcomes are framed. Mental accounting is a type of framing in which individuals are hypothesized to form psychological accounts for the outcomes. While the anecdotal examples are widely known, the mechanisms underlying the phenomena are still not well understood (Thaler 1993). The present symposium hopes to provide insights into several choice anomalies that are better understood as mental accounts.

Despite having different objectives, the four papers investigating mental accounting processes have certain commonalties. The general theme is that mental accounting induces people to behave in a fashion that violates normative behavior in systematic ways. The present papers also share common elements in terms of the process underlying principle of mental accounting. In doing so, the papers examine the link between mental accounts and theories of categorization. In particular, principles of categorization can be used to understand the causes, effects, and the processes of mental accounting.

The study of mental accounts has important implications for the role and definition of consumer behavior and marketing. By treating normatively equivalent procedures for providing information as unequal, mental accounts helps to understand the motives underlying such behavior. While sharing a common theme, the researchers address different surface problems (e.g., savings, pricing, bundling) using different methodologies (laboratory experiments, process measures, and field research.) The first paper (Greenleaf, Morwitz, and Johnson) examines the practice of "divided pricing" by which many firms divide the price for a product or service into at least two parts rather than charging a single, all inclusive price. Standard economic theory suggests that consumers will be indifferent between an all-inclusive price and divided prices that add to the same amount. The authors conduct a series of experiments which demonstrate that using divided prices can increase consumers' demand and expenditure, and reduce their perceptions of the price of a product.

The second paper (Prelec and Loewenstein) explores attitudes to borrowing and saving decisions, and presents relevant survey data. The authors show how the preferences for borrowing and saving programs depend on the degree to which the cash flows are psychologically coupled to specific products. For savings programs, they find a preference for a highly coupled arrangement, such as savings for college tuition, rather than more loosely coupled ones, such as savings for some general category of expenditure. The theoretical part of the paper translates these findings into a formal mental accounting model.

The third paper (Dhar and Simonson) studies how consumers make spending decisions in a number of related categories. According to classical choice theory, the choice for each component should depend only on individuals preferences and the set of available alternatives in each component. The authors propose that people's choices in each component of the bundle may be influenced by choices and outcomes of other components in the same mental category. Such a viewpoint broadens the set of outcomes that may serve as complements in a consumption situation. The results are inconsistent with the notion of mental budgeting and a number of other existing explanations.

The fourth paper (Heath and Fennema) examines the intuitive rules that people use in determining whether they are "getting their money's worth" by performing a kind of "mental depreciation" or "amortization." Not surprisingly, people feel that items depreciate over times and uses. People feel that they get their money's worth faster if an item is used for special occasions. In a field study, the authors examine student's behavior for a dorm meal plan that has a high up-front membership fee, but very low marginal costs.

Given the diversity of the papers, the direction of the discussion was to arrive at a unifying force rather than a session summary. Ratneshwar, the discussant helped to highlight some of the promising avenues that are emerging in this area of decision research as well as make suggestions for future research based on the findings in the categorization literature.

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