Behavioural Traps - Mental accounting
Money is a perfectly convertible asset, in the sense that €100 salary, €100 inheritance or €100 found in a pocket should have exactly the same value. Yet in reality, it's not like that at all for many people. We treat money differently depending on where it comes from, and on how we keep it or spend it. The explanation for this is known as mental accounting, namely the tendency we all have to divide the money we have into different partitions or mental accounts. Mental accounting teaches us that our behaviour changes according to the context and the financial decisions we have to make.
When we make financial decisions it is easy to fall into behavioural traps; in other words, we are vulnerable to bias. What are these traps? Errors that we commit when we make decisions that are caused by unconscious decision-making processes, or cognitive biases. Such biases affect how we think and how we interpret and use information.
The eight videos - one introductory video and seven focusing on various topics - of the series on behavioural bias describe some very common mistakes we all make: present bias, mental accounting, diversification bias, the framing effect, the overconfidence effect, representativeness bias and the endowment effect.
They were produced in partnership with Università Ca' Foscari Venice, with the involvement of its students and professors. Each video starts with a brief introduction of the key concepts, then offers practical examples and presents experiments done on students and ordinary people to demonstrate these concepts in action.