Four-Decade-Old Money Theory Passes Its First Global Test, With A Twist About Wealth

Lost Ticket Versus Lost Cash: Study Finds the Same Money Quirk in 21 Countries

Lose a $40 concert ticket, and people become less willing to buy a replacement. Lose $40 in cash instead, and they are more willing to buy the ticket anyway. The math is identical either way, yet the two losses feel different. Behavioral scientists call this mental accounting, the habit of sorting money into mental buckets, like fun money or rent money, even though a dollar is a dollar wherever it came from.

A new study in the Journal of Consumer Research asked whether this idea, about four decades old, still holds up in a world of apps and tap-to-pay. Researchers surveyed 5,589 adults in 21 countries, from the United States and Germany to Egypt, Vietnam, and Morocco, and found the habit in every one. It was not equally strong everywhere. The richer the country, the stronger the habit, at least until national income reached about $50,000 per person. Past that point, it leveled off.

That runs against a natural guess, since people on tight budgets might be expected to guard their money categories more strictly. Yet a person’s own income, schooling, age, and know-how about interest rates and inflation made no clear difference. Their country’s wealth did show a link.

Mental Accounting Held Up in 21 Countries

Researchers recruited adults online, through social media and forums, in the fall of 2022. Countries that dropped out or failed to reach 250 participants were cut, leaving 21 of the 32 first recruited. The final group was 57.1% women, with a median age of 30.

Everyone read seven money scenarios borrowed from classic work by Daniel Kahneman, Amos Tversky, Richard Thaler, and Eldar Shafir, translated into local languages, with dollar amounts adjusted to local incomes. In one, shoppers decided whether driving 20 minutes to save $5 was worth it, depending on whether the discount landed on a cheap item or a pricey one. In another, people judged who would be happier: someone who won $50 and $25 in two separate lotteries, or someone who won $75 in one. Same total, but the theory predicts the split winner feels better. In a third, they named the price they would pay for a cold drink on a hot beach, depending on whether a friend would buy it at a fancy resort or a run-down grocery store.

When data from all countries were combined, all seven patterns held up, matching the direction of the original findings. Checking each scenario in each country, 133 of 147 results, or 90.5%, did too, beating the roughly 70% typical for social science repeat studies. Two scenarios matched in all 21 countries, including one asking people to set a resale price for a sports ticket depending on whether the buyer was a friend or a stranger. The lost-ticket scenario from the opening was shakiest, matching in 15 of 21 countries. The habit was generally weaker than in the original studies, which relied on small samples.

Richer Countries Show Stronger Mental Accounting, Up to a Point

Other national traits, including currency, income inequality, and level of democracy, showed no link once wealth was counted. Still, wealth may not be the cause, and the authors call the finding an early look that needs confirming. Since higher earners within a country were not reliably more prone to the habit, national income may be standing in for something else, such as trust in institutions or how connected a country’s markets are.

Another possibility from the authors: scenarios dreamed up in high-income settings may fit wealthier countries better. They floated an idea before the study began: in lower-income countries even a small discount carries real weight, so shoppers may focus on dollars saved rather than an item’s price. Either way, a weaker habit in lower-income countries does not prove people there handle money more rationally.

Mental Accounting Looks Like Several Habits, Not One

Scenarios did not all rise and fall together. When researchers compared which ones moved in step across countries, three patterns emerged: decisions involving another person versus solo ones, judging someone else’s situation versus making one’s own choice, and setting a price versus reacting to a fixed one. The authors call this their interpretation and say other readings are possible.

Within individuals, a strong result on one scenario said almost nothing about another. A person who fell hard for one money trick was not much more likely to fall for the next.

Money Tools Built on Mental Accounting Need Local Testing

Mental accounting shapes how people treat tax refunds, debt, and savings, and most payments were cash or checks when it was first studied. That it held up anyway reassures programs already built on it and backs new ones, such as banking apps that help customers see their spending. The researchers floated further ideas, like bundling small debts together or highlighting the payoff of paying a little extra each month.

A dollar is still a dollar, yet people in 21 countries keep treating it like several. Money advice built on that habit should be tested locally before it travels, the authors say.

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Disclaimer: This article summarizes a published research paper for general informational purposes only. It is not financial, legal, or professional advice, and the findings may not apply to every person or situation. Readers should consult a qualified financial professional before making decisions about their money.

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