Commentary---Mental Accounting and Consumer Choice: Anatomy of a Failure

I am pleased, of course, that my paper on mental accounting was selected for this issue. The paper is one of my favorites, and the topic is one I continue to think and write about all these years later. In this note I would like to give a brief history of the paper and say why I consider it a failure in the sense that it did not achieve the goal I had in mind when I submitted it to Marketing Science. Mental accounting is the process, sometimes implicit, by which individuals and households keep track of and evaluate their transactions. It serves very much the same function for households that financial accounting serves for organizations. The topic is one I first discussed in my earliest paper in behavioral economics (Thaler 1980), entitled “Toward a Positive Theory of Consumer Choice.” In that paper I referred to the concept as “psychological accounting” but my friends, mentors, and later collaborators, Tversky and Kahneman (1981), suggested a better term “mental accounting,” and I have adopted that term as well. My training is as an economist, not a psychologist, and my interest in this topic came from my inability to explain some behaviors, such as the failure to ignore sunk costs. It was obvious to me that theory and behavior were at odds here, but I could not pin down why. I felt that I could make some progress on this question by better understanding what happened, mentally, when purchases were made. Did people make mental debits and credits? If so, why would these mental accounting entries lead them to be more likely to eat a dessert if they paid for it, than if it were given to them for free? Since the paper itself follows this note, I will not summarize the answer, but for my latest thoughts on this question, see Shafir and Thaler (2006). Since the paper is often cited, it seems odd that I would call it a failure. Why? Part of the answer lies in a comparison with another paper I published the same year (De Bondt and Thaler 1985). That paper is not cited quite as often as the mental accounting paper (454 times, according to the Web of Science), but it has been successful in precisely the way in which the mental accounting paper has failed. To explain the failure, I have to explain why I submitted the paper to Marketing Science in the first place. By 1983, when I was getting ready to submit the mental accounting paper to a journal, I had spent about five years doing research that applied ideas from psychology to economics, a field that has since come to be called behavioral economics. This was a lonely activity to be pursuing at this time, and while I found the work interesting, I was interested in encouraging others to join the fun, so that I would at least have someone to talk to. It occurred to me that a natural place to apply some mixture of economics and psychology would be marketing. After all, I thought, much of what firms do in marketing their wares, from advertising to packaging, seems difficult to explain within the standard economic model. Why do beer companies, for example, spend so much money showing commercials with guys drinking beers, or gals in bikinis? Does this really provide information about beer? Since I was working in a business school I knew that marketing was also a field that already had both behavioral and quantitative types, so I thought (naively) that a blend would be a perfect match for marketing. With this in mind, I sent my paper off to Subrata Sen at the then-new journal, Marketing Science. Subrata and I had been colleagues briefly at the University of Rochester, and I knew he had some interest in this area. I had considered sending the paper to the Journal of Consumer Research, but I had been assured that there was absolutely no chance the paper would be accepted, a judgment that I think was probably right. Also, it was economists that I wanted to reach, not psychologists, so Marketing Science seemed like a better choice. Subrata sent the paper off to an associate editor and three referees. After a few months I got a rather sheepish letter from Subrata. Although Subrata liked the paper, no one