(intro music) My name is Laurie Santos. I teach psychology at Yale
University, and today I want to talk to you about
mental accounting. This lecture is part of a
series on cognitive biases. Imagine that you decide to go see a
new movie opening up in your town You head to the counter and hand
the cashier a twenty dollar bill. She gives you back a ten dollar
bill and a ten dollar ticket. But when you get to the theater door, you realize you don't know where your ticket is. It's not in your purse or your pocket. It's just lost. What would you do? Do you think you'd pay ten
dollars for a new ticket, or would you just head home? If you're like most people, you might
be tempted to head home. In fact, when the psychologists
Kahneman and Tversky presented this problem to college
students, fifty-four percent of people said they'd probably just head back home. But now imagine a different scenario. This time, you decide to see the movie, and you head to the counter and
hand the cashier twenty dollars. This time, she gives you
back two ten dollar bills, so that you can easily pay ten
dollars at the door to get in. But when you get to the door, you realize that you can only find
one of the ten dollar bills. The other one's not in your
purse or your pocket. It's just lost. What would you do? Would you pay ten dollars for
the movie or just head home? if you're like most people, you'd
probably still go see the movie. In fact, when Kahneman and
Tversky presented this problem to college students, eighty-eight percent of people said they'd
probably go to the movie anyway. The different responses to these cases illustrate a bias known
as "mental accounting." We use different accounts in our heads for different activities, and the resources
from one account aren't automatically transferred for use in another. This is why we pretty rarely
take fifty dollars from our 401k account to have a nice meal, or why
we sometimes blow our tax return on stuff we'd never blow our savings on. In our head, we automatically
set up different accounts for different stuff, and if we
end up with extra money we didn't expect, say from a windfall in a tax return, or
even from an unexpected coupon, we end up blowing that money
in this new extra account. It's why gamblers gamble a lot more when
they're playing with house money. We use different mental
accounts all the time, from the money we plan to spend on
something fun like movies and plays, to the accounts we keep for
our kids' college tuition. Our minds just naturally
keep things separate. The problem is that our intuition
to keep things separate violates a classic economic principle:
the idea that money should be fungible. Classical economist are often
puzzled by the fact that we can't just think of money as, well, money. Why shouldn't a ten dollar ticket and
a ten dollar bill be the same thing? To an economist, it should be. But for our minds, not so much. The good news is that we can use these funny mental accounts
to our advantage. A friend of the behavioral economist
Dick Thaler did just this. He set up a new account with money that he planned to donate to charity
at the end of every year. Each time something bad happened, a parking ticket or lost ten
dollars for a movie, he took the money out of
that account instead. His mental accounting caused him to think
that the money wasn't really his anyway, and it made him feel less bad
whenever he experienced losses. Our biases toward mental accounting mean that our minds don't work in the way
that classical economists like to think. But we can use these mental accounting
biases to our advantage. We have control over which accounts
we set up and which we deduct from Just be sure to remember that the next
time you happen to lose your movie ticket. Subtitles by the Amara.org community