Mental accounting and decision making: Evidence under reverse conditions where money is spent for time saved

Abstract

Evidence from the behavioural decision literature suggests that economic decisions may be made on less than rational grounds. In this respect the formation of ‘mental accounts’ by individuals has been used to explain apparent departures from rationality in certain scenarios. The purpose of this paper is to establish the general applicability of mental accounting by investigating multi-attribute decisions where the following conditions vary: (1) the denomination of the mental account (i.e. whether the saving is denominated in money, as is classically the case, or time) and (2) the absolute saving level. Using a novel decision scenario, we replicate the prior findings of mental accounting effects under the classical conditions where individuals trade-off time spent for money saved, though these effects are sensitive to the level of absolute saving. However, when the conditions of the decision scenario are reversed, such that individuals trade-off money spent for time saved, mental accounting effects are no longer observed. This result is robust irrespective of whether participants are required to state maximum willingness to spend time/money or face a choice (yes/no) task. These findings qualify the results reported in prior studies, suggesting that mental accounting effects maybe context specific and suffer from a lack of generality.