mental accounting
a cognitive process in which individuals track and evaluate their income and expenditures by grouping them into consumption categories or mental accounts: This in turn affects future transactions by influencing how economic activities are perceived. The topical organization of mental accounts leads people to evaluate gains and losses in relative rather than in absolute terms. For example, a person who finds that a $10 bill is missing while waiting in line to buy a $10 theater ticket is likely to buy the ticket anyway, whereas the same person might be unwilling to spend another $10 to repurchase a new theater ticket to replace one he or she lost. In such a case, going to the theater is viewed as a transaction in which the cost of the ticket is exchanged for the experience of seeing the play, so that buying a second ticket increases the cost of seeing the play to an unacceptable level; by contrast, the loss of the cash is not posted to the account of the play and it affects
the purchase of a ticket only by making the individual feel slightly less affluent. Mental accounting is derived from prospect theory and one of several theoretical approaches to financial decision making. See behavioral finance.