• Mental accounting, a behavioral economics concept introduced in 1999 by Nobel Prize-winning economist Richard Thaler, refers to the different values that people place on money based on subjective criteria, often with detrimental results.

  • Mental accounting often leads people to make irrational investment decisions and engage in financially counterproductive or detrimental behavior, such as depositing into a savings account with a low interest rate while having large credit card balances.
  • To avoid mental accounting bias, people should treat money as perfectly fungible when they allocate it to different accounts, be it the budget account (everyday spending), the discretionary spending account, or the wealth account (savings and investments).