Professor of behavioural sciences and economics at University of Chicago given annual economics award
One of Thaler’s theories is about “mental accounting”. The citation describes this as using different reference points to help make decisions, which vary from situation to situation: “One reference point could be the price for which we bought an item, or the lowest price we find when searching on the internet, and we use this reference point to assess whether we have made a “good deal”. In his research, Thaler has provided numerous examples of how mental accounting using differing reference points may lead to decisions that appear strange when evaluated from a traditional economic perspective.”
“A consumer who finds out that the watch she is about to buy is 100 Swedish krona cheaper in another shop. She chooses to go to the other shop if the watch costs 1,000 krona but won’t do so if it costs 10,000 krona even though the saving in krona is the same. The explanation is that she focuses on the percentage, rather than on the actual saving relative to the reference point.”