CRITICAL THINKING – Cognitive Biases: Mental Accounting [HD]

(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 community

23 thoughts on “CRITICAL THINKING – Cognitive Biases: Mental Accounting [HD]”

  1. I feel like with all of these videos, they just put a label onto what we already know to exist. Also, I know a lot of people will claim this but I genuinely donโ€™t believe that I fall for these.

  2. I find the movie theater example very dubious – you already invest the fixed non refundable cost of getting there in time and $$, even if you lost the ticket, u can either argue for a new ticket because u just bought it or just buy a new one is still better than going home with all the sunk cost wasted.

  3. I think I rooted out this weird separate accounts for separate things thing when I was very young. Always thought my mother was being irrational when she spoke of money for certain things… it's all the interchangable fiat/credit so who cares? I guess it can help with self-discipline though. Personally I have different norms for financial self-discipline and they seem to work okay. I will admit the amount of time I spent choosing where to live didn't reflect the marginal return on investment. But I try to treat all money-saving as equally important… I try to be rational. I wish I had more self-control with my time though.

  4. Weird, I'd be inclined to buy a new ticket in the first case and head home in the second. I guess I feel more guilty and self-punitive when it's actual money that's been lost. I guess also losing a ticket seems like a one-off failure maybe owing to the tickets being made deceptively losable whereas losing money seems like a general irresponsibility, carelessness, etc. makes me imagine my father telling me off, calling me privileged and spoilt.

  5. From the actual article. I don't think it's presented correctly here.

    Problem 8 [N = 1831]
    Imagine that you have decided to see a play where admission is $10 per ticket. As you enter the theater you discover that you have lost a $10 bill. Would you still pay $10 for a ticket for the play?
    Yes [88 percent]
    No [12 percent]

    Problem 9 [N = 2001]
    Imagine that you have decided to see a play and paid the admission price of $10 per ticket. As you enter the theater you discover that you have lost the ticket. The seat was not marked and the ticket cannot be recovered. Would you pay $10 for another ticket?
    Yes [46 percent]
    No [54 percent]

  6. None of this made sense to me. Money is money. I would definitely just buy another ticket. Who the hell would just go home when you've gone all the way to see a movie. Stupid

  7. Maybe because ten dollars and a ticket really aren't the same thing. Dollar bills are arbitrary symbols of value; a ticket is a material thing. It's only natural that we treat them differently in our mind. I suspect that it is the economists that are weird, not us ๐Ÿ˜›

  8. Assume that in the both cases the ticket and $10 are mysteriously gone forever (i.e no hope of finding the $10 later, which appears to be the assumption of most commenters ). This reveals another possible motivation for people being more willing to pay the remaining $10 than to buy another ticket. When you're paying with the $10 at the door, in your mind you have already decided to take the action of spending $10 in order to enter the cinema. Perhaps since paying with a different $10 bill isn't fundamentally altering your action in that moment, you are biased towards continuing on your current course of action, since you've already taken a decision to fulfill it and therefore it's easier to enter the cinema than it is not to. Think of it as "motivation inertia". However, in the missing ticket case, the action you decided to take was still to pay 10$ in order to enter the cinema, but now there is an intermediate action – the action of buying the ticket. You now have to decide to take another action if you want to enter the cinema, as opposed to just maintaining your current course (i.e more effort needed to overcome your "inertia"). What do you guys think of this? ๐Ÿ™‚

  9. Like some other commenters I believe that the movie ticket is less worth than 10 dollars if I happen to find it again later, so wouldn't the scenario be more interesting if the bill/ticket somehow got destroyed (my dog eats it or something) rendering it impossible to get any value back at a later point in time?

  10. I chose to buy another ticket because who would put in the effort of going all the way to the movies and then just going home…

  11. If I think about the unknown possibly of finding my misplaced ticket later, it would not still equal to $10 of value, it becomes useless after the scheduled time for the ticket. Whereas, if I were to find to my $10 later I can it remains fungible. So based on that, there is a risk of wasting $10 extra to buy a new ticket.

  12. There is a flaw here. Movie tickets are not money. 1 ticket does not equal 10 dollars if the ticket is not refundable. Many students might believe that they still have that lost 10 dollar bill in their home, car or temporarily misplaced.

    I don't see mental accounting as a flaw I find the way economists thinks inferior to "mental accounting".

    Budgeting is an absolute necessity. You wouldn't want to blow all the money you keep for cancer surgery on food. And you wouldn't want to blow all the money you need for food on fun.

    And yet, you will always want more than you can have. That's simple scarcity, a very basic concept in economics.

    So you keep the money separate. Run out of fun money? Either replenish the pool or no more movies.

    Run out of food money, fun money might go in there since it's more important.

    Run out of cancer surgery money? Going into savings, loans, and selling things or asking for help.

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