Perspectives on mental accounting: An exploration of budgeting and investing

Zhang, C. Yiwei; Sussman, Abigail B.

doi:10.1002/cfp2.1011

Cited by 50 publications

(41 citation statements)

References 88 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Based on first-hand information practicing mental accounting will give them a cue about their limits within which they can plan out for each investment goal or warn them about their own financial shortage to be faced in future, which aids them to take rational decisions (Zhang, C, Y., & Sussman, A. B., 2018).…”

Section: Resultsmentioning

confidence: 99%

See 1 more Smart Citation

Does Availability Bias Have Influence on FMCG Investors? An Empirical Study on Cognitive Dissonance, Rational Behaviour and Mental Accounting Bias

B¹,

Ram²

2019

IJFR

View full text Add to dashboard Cite

Investors usually rely on the first-hand information to take their investment decisions. Investors are prone to many types of heuristics and bias which can lead to indecisive situations or irrational behavior and affect their performance. Indecisive state of mind of investors is attributed due to cognitive dissonance as it differs from their belief and the facts they come in reality. Mental accounting has its own advantages of meeting the investor’s goal on time and allocating resources effectively to achieve each of their investment objectives, on the contrary it can also lead to poor portfolio management and performance. The current study is conducted in order to understand the influence of availability heuristic influence on cognitive dissonance and rational behavior through mental accounting bias as a mediating factor exclusively on Fast Moving Consumer Goods (FMCG) investor’s decision making in stock market. Data was collected by purposive sampling method using self-administered questionnaire from 614 FMCG investors through 15 stock broking firms registered in Hyderabad city, tools like correlation, analysis of variance, Cronbach Alpha test, linear regression and mediation are used for data analysis. The results reveal that availability bias, cognitive dissonance and rational behavior are highly correlated to one another. Availability bias influence on cognitive dissonance and rational behavior of FMCG investors through mental accounting bias is negligible. Though many studies have accepted the major role played by mental accounting bias and few against it in our study it is proved to be negligible in case of defensive sectors of FMCG investors.

show abstract

Section: Resultsmentioning

confidence: 99%

“…Increased information, intermittent notifications of news and other the readily accessible information on the whole will motivate investors depending on the efficacy of the information. It can also demotivate them to perform financial segregation and planning of mental accounting (Zhang, C. Y., & Sussman, A., 2018).…”

Section: Mental Accounting Biasmentioning

confidence: 99%

Does Availability Bias Have Influence on FMCG Investors? An Empirical Study on Cognitive Dissonance, Rational Behaviour and Mental Accounting Bias

B¹,

Ram²

2019

IJFR

View full text Add to dashboard Cite

show abstract

“…Mental accounting was primarily conceptualized as a cognitive process “to organize, evaluate, and keep track of financial activities” ( Thaler, 1999 ). Mental accounting has since then been applied to a large number of financial and non-financial behaviors (for a recent review, see Zhang and Sussman, 2018 .) While we note this intriguing possibility, we believe future research could formally test whether consumers do, indeed, assign different mental accounts for different denominations: for example, $1’s and $5’s for tips and coffee, $10’s and $20’s for outdoor food, fruit and flower shopping, and $50’s and $100’s for contractor’s services.…”

Section: Discussionmentioning

confidence: 99%

Price-Denomination Effect: Choosing to Pay With Denominations That Are the Same as the Product Prices

et al. 2020

View full text Add to dashboard Cite

Building on past research on judgment anchoring, we investigate the effect of price information on consumers' choice of denomination when making a purchase. Across seven experiments, including two in the field (N = 4,020), we find that people tend to purchase with denominations that are the same as the product prices. They use larger denominations for higher priced products that are priced at the value of the denomination held, and smaller denominations for lower priced products that are priced at the value of the smaller denomination held. The effect is not explained by storage or purchase convenience. We propose the "price-denomination effect" is driven by consumers anchoring on product price and then choosing the denomination that matches the anchor. The effect replicates across participants from different continents (United States, Europe, and Africa) and samples (online panelists, and actual consumers), as well as prices in different currencies (United States $, €, and Nigerian Naira). We further demonstrate that people's preference for denominations also affects the choice of the form of payment used: cash versus card. Consumers are more likely to use cash (vs. card) when product price is exactly the same as a denomination held. We conclude with a discussion of theoretical and practical implications.

show abstract

“…Mental accounting is the set of subjective cognitive operations for the organization, evaluation and keeping track of economic outcomes (Thaler, 1999). In addition to categorization, income labelling and hedonic editing, mental budgeting is one of the components of mental accounting (Zhang and Sussman, 2018; Antonides and Ranyard, 2017; Thaler, 1999). Mental budgeting describes the separation and allocation of money across different expenditure purposes (Zhang and Sussman, 2018).…”

Section: Literature Reviewmentioning

confidence: 99%

The effects of mental budgeting on the intentions to switch to low-toxicity pesticides: evidence from vegetable farmers in Sichuan, China

Zeng

Herzfeld

2021

CAER

View full text Add to dashboard Cite

PurposeMental budgeting, as a part of mental accounting theory, is expected to impact a household's budgetary management in terms of expenses. The purpose of this paper is to study whether and how mental budgeting can explain differences in farmers' reactions to different incentives of low-toxicity pesticide use.Design/methodology/approachBased on data from a survey of 393 vegetable farmers in the Sichuan Province, this analysis, using a Likert Scale approach, first explores whether farmers utilize mental budgeting. Secondly, using a Probit model, this paper analyzes how mental budgeting affects farmers' intentions to switch to low-toxicity pesticide use when faced with different incentives.FindingsThe results show that the majority of farmers categorize agricultural inputs into different groups and that 26.46% of the investigated farmers utilize mental budgeting for pest control practices. In addition, farmers who utilizing mental budgeting report a higher willingness to switch to low-toxicity pesticides when they're presented with a specific subsidy. Furthermore, if offered a price premium for quality, the willingness to switch to low-toxicity pesticides for farmers utilizing mentally budget is lower compared to other farmers.Originality/valueThis paper examines the existence of mental budgeting among farmers. It provides a better understanding of how farmers categorize agricultural inputs and their mental mechanisms with respect to agricultural expenses. Finally, this paper is the first to study the effects of mental budgeting on farmers' reactions to different incentives aimed at stimulating the adoption of low-toxicity pesticides.

show abstract

Perspectives on mental accounting: An exploration of budgeting and investing

Cited by 50 publications

References 88 publications

Does Availability Bias Have Influence on FMCG Investors? An Empirical Study on Cognitive Dissonance, Rational Behaviour and Mental Accounting Bias

Does Availability Bias Have Influence on FMCG Investors? An Empirical Study on Cognitive Dissonance, Rational Behaviour and Mental Accounting Bias

Price-Denomination Effect: Choosing to Pay With Denominations That Are the Same as the Product Prices

The effects of mental budgeting on the intentions to switch to low-toxicity pesticides: evidence from vegetable farmers in Sichuan, China

Contact Info

Product

Resources

About