Richard Thaler from the University of Chicago was awarded Nobel Prize in economics because of his self-control and mental accounting theory.
It was very famous in psychology and economics because he had combined both of the hot topics. It is a discovery on human behavior for the prediction of the economic condition.
What is the new concept?
Nudge or push was the new concept for Thaler when it comes to small environmental changes. It might bring some big influences on the behavior of a person depending on the weak economic situation. You can see that nudge is used to opt out the default options from a person. Self-control prevents a person to opt out the default option until there is a big pool.
What is mental account?
Suppose you are going to a movie with your girlfriend. You have decided to treat your dear with a movie, which costs around 10 dollars. You may have purchased the tickets, but you lost the game by an hour. Now the question is what you will go to that movie again by purchasing another pair of tickets. You have to add another 20 dollars to your mental account. Many people would say that they will go for the movie; it is a strange answer.
What are the key findings of mental accounting?
- Many people would go to visit the movie. They might feel bad about the coincident. They might feel that the movie costs twice than the actual cost.
- The researchers have found that people like to stay with the default option.
- It ensures that policymakers should choose and fix a default option.
- In the case of emergency, people will shift their default option.
Have a look at the easy example
Suppose you are checking someone’s driving license. You should ask them/him whether they want to become an organ donor or not. They should have checked the box of an organ donor in the form to become an organ donor. If someone does not check that option, you might opt out that everyone should be an organ donor.
The idea of mental accounting from Thaler’s theory is very interesting. It shows that people will not spend all money, efforts, and resources if it is not a big deal. Every person has separate mental accounting system when it comes to spending money. Richard Thaler also shows that these accounts depend on the type of goals. The self-control provides an additional layer of the mental accounting.