MENTAL ACCOUNTING. Traditional Economics treats all money the same. However, people tend to put money into different mental compartments. For example, many people make a monthly contribution to a retirement plan even if they have outstanding credit-card balances. This is not economically rational, because the return on investment in the retirement account (even after tax savings) will likely be less than the credit-card interest. Nevertheless, people often view their retirement contribution as sacred and wall it off from current spending. This mental compartmentalizing of different types of
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